Boost Your Odds of Getting a Small Business Loan Through These Simple Ways
Getting a loan to finance your own business is a daunting task and is often considered impossible due to the low approval rates by the banks. A recent survey conducted by the Federal Reserve showed that less than half of the small businesses apply for financing, and out of those who do require a loan, only 18% receive the money they need from the banks. Since these numbers are so low, most businesses get discouraged and decide not to apply for a loan in the first place.
Nonetheless, there are certain steps you can take too increase the odds of getting your small business loan application approved by a lender.
Start Working on Your Application As Soon As Possible
The approval process for a business loan isn’t as easy as you may think. You don’t simply walk into a bank and fill out a form and instantly get the money you need. Unfortunately, it can take several weeks – and in some cases, even months – for the bank to review your application and give their verdict.
The best thing you can do to boost your chances of approval is by gathering the documents you need for the application and submitting it as soon as possible so that you have enough time to weigh your options and come up with a plan B if the application is rejected.
Your Personal Credit History Matters
Before your bank can approve your loan application, they need to ensure that you, the borrower, will be able to pay back the money you owe. One crucial factors that banks consider when reviewing applications is the borrower’s personal credit history to determine the risk level associated with giving out a loan. If you have a bad credit history, it can impact your chances of receiving a loan, and even if your application does get approved, the interest rates will be much higher than anticipated.
In order to prevent your personal credit history from getting in the way of acquiring financing for your business, work towards improving your credit score before applying for the loan. Any traditional lender will expect a credit score of 700 or higher before approving a loan and you can bump up your score by a few points through a few simple practices.
Credit Sesame says that the two most important factors that make up 65% of your credit score are payment history and credit utilization. By simply paying your bills on time and using your credit line a little less can improve your overall score drastically within a few months.
Have a Detailed Business Plan
Having a great business plan isn’t just important for getting a loan but also for the success of your venture. Most lenders would like to hear how you plan to spend the money you will be getting and, more importantly, how soon your business will start making enough profit to pay back your debt.
These are important questions that give the lender insight on how risky it is to give out a business loan. In a sense, the lender is your investor and you need to assure them that your business will be successful in order to win their trust. Make sure to include every small detail in your plan and be prepared to answer any question that the lender may have regarding your business.
Talk to Financial Experts
The more detailed you are about each and every aspect of your business plan, the higher your chances of getting an approval for your loan. Estimating how much financing your business will need is one thing but getting input from your board of directors or financial advisors will take your application to a whole different level.
Your lender would like to see that there are more experienced people on your team who know how to use the funding your business will receive and help it grow. Be as specific as you can when explaining why you need the loan and how you plan to use the money in order to reduce chances of rejection.
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