Getting a small business loan doesn’t have to be a hair pulling process. Now that lenders are more open to giving small business loans, the application and approval process can actually be quite a breeze! Every small business owner has thought about small business loans and probably decided against looking into their options. That is a huge mistake! Small business loans are trending up right now, and it is easier than ever to get yourself through the loan process. Every lender looks at you as a small business owner and your business as a whole when deciding whether you are a viable prospect. However, there are a few things you can do to improve your chances of getting approved for a small business loan.
10 Tips to Help You Get a Small Business Loan
1. Prepare Early
Lenders look at two key things when deciding whether to give you a small business loan – personal credit and profitability of the business. Putting your best foot forward by being over prepared for your interview can really help give you a push in the right direction. Being over prepared by paying off any recent credit card debt and creating a business resume can really make you stand out from the rest of the crowd. You must also be prepared to share ALL of your financial information, including but not limited to your financial history, your growth plan, as well as personal financial information. Doing so gives your lenders a good overall picture of your business and can decrease the amount of time it takes from application to closing for you to get a small business loan.
2. Look Into Multiple Lenders
Your chances of a getting a small business loan will increase dramatically if you research several financial institutions and apply to at least three of four different ones. Research large and local banks as well as alternative lenders like Kabbage. Lending options are seemingly endless when it comes to small business financing, so make sure you find the program that works best for your business as a whole. When researching financial institutions, be sure to look into lenders that have successfully lent to your industry before as well as lenders who work with businesses that are in the same stage as yours (start-up, growing, etc.).
3. Lay Out at Least Two Payment Plans
Traditional lenders typically look for two sources of repayment before approving a loan. This means you need to prove that you have options or collateral to pay back your loan in a timely manner. Take the time to determine your possible payment alternatives and write out a detailed plan/proposition for how you plan on making it work to repay your loan. Having the foresight to map out your repayment plan with an effective back up makes you seem like a more viable candidate to potential lenders. Deciding how you will pay back your loan early is good for the lenders, but it is also great for you as a business owner because it is one less thing you will have to plan in the future.
4. Know What Type of Loan You Need
There are many different types of small business loans available to small businesses, so it is wise to research each type and decide which one will work best for you. The Small Business Administration and SCORE both provide a plethora of information regarding SBA loans, so you should reach out to your local chapters or websites for detailed information. Be sure to research which types of lenders provide each specific loan so that you are well prepared when you go in for your interviews or when you submit your applications.
5. Understand and Know the Risks Bankers and Lenders Look At
When lenders look at potential borrowers, they evaluate them on a risk scale. If you are deemed a risky asset, your loan will not likely be approved. But what exactly qualifies someone as risky? A risky borrower has the following characteristics:
- Too little owner’s equity
- Slow/past-due loan or credit history
- Poor earnings
- Low-quality collateral
- Is a new company
- Inadequate accounting system
- Questionable management
6. Personal Character
Although it is not directly stated, lenders look at your moral and ethical character before making a final decision. This is important to lenders because they want to find viable borrowers who are likely to pay them back. Your character is a direct representation on how working with you will be for the lender, so be on your best behavior!
7. Improve Your Personal Credit
You stand a much better chance of getting a small business loan if you work on bettering your personal credit history. The best way to go about this is by paying down your personal debts and credit cards as much as possible. Doing so gives the bank more faith in you as a viable asset because you aren’t overextending yourself on credit or loans. This step is extremely important because you will have to personally guarantee your small business loan.
8. Expand Your Banking Relationships
Banking is not a monogamous type of relationship. In fact, a lot of people have multiple banks for their different accounts. If you use more than one bank, keep doing so when it comes to your business loans. It spreads your risk and decreases your dependency on one financial institution. Having accounts and loans at multiple banks also gives you a larger amount of credit since you have multiple lines out.
9. Go Local
Local, smaller banks understand small businesses better and are much more likely to lend to them. Most local banks also specialize in certain types of loans for certain industry verticals, so be sure to do your research before meeting with different lenders. Dealing with banks that specialize in your industry is great for you because they can offer you valuable advice based on their prior experience. National banks are much more likely to pass your small business up based on smaller revenues and lack of sufficient collateral.
10. Go Alternative
For shorter term loans that are much simpler to get approved for, turn to alternative lenders like Kabbage! In minutes you can find out whether you are approved, and Kabbage is constantly reevaluating your data to extend revolving lines of credit. The best part about Kabbage is you only pay for the cash you use!
We know getting a small business loan can be overwhelming and hard, but you can follow the steps outlined about to make the process easier for you and improve your chances of getting approved!