Lending companies are willing to extend loans to businesses but they need a guarantee that the loan will be promptly repaid. Established businesses that are doing very well in the market have a great chance of approval. On the contrary, if you own a new business or a start-up business, applying for a loan the first time can prove to be a challenging task.
After the challenge, it does not mean you should not try to apply for a business loan at all. In this article, let us discuss the strategies you can do to increase your chance of getting an approval.
Know the Prerequisites of the Business Loan
Generally, lenders will require the submission of your financial records for the past two years or if you're a new business, since the time you started. You must also prepare proofs that you are running a legitimate company such as permits and licenses.
For new and start-up businesses, a sound business plan will be expected. Your business plan must present a clear explanation of the type of business you are running and must include monthly cash flow projections since you started your operations.
For established businesses, make sure that balance sheets are accurate as any discrepancy in the details may cause an alarm. Business lines of credit you have previously agreed will also be evaluated. Yes, your business credit history will be closely reviewed.
But what if you have yet to build up your corporate credit history? In this case, your personal credit history as the owner of the business will be taken into consideration. How you manage your personal accounts such as loans, mortgage, and credit card debts will show a potential lender your ability to manage a business loan.
This is why it is recommended that you obtain a copy of your personal credit report prior to submitting your loan application. In this way, you can still correct errors or inaccuracies that may be included in your report which could have been pulling down your score.
Needless to say, the same advice is also applicable even to owners of established businesses. Check both your corporate credit and personal credit history to make sure that both your personal and business credit profiles are in good standing.
Preparation Is Vital
Indeed, preparation is very important when applying for a business loan. Financial experts recommend making investments in assets that generate income such as inventory or equipment. You should also avoid major changes in the structure of your business a few months before submitting your loan application. Remember that you need to show a potential lender that your company is in a stable state.
Aside from bigger banks, it is also worth the effort to check out what business loan programs that are available from your local bank. Smaller banks may be more inclined to finance a new business, especially if the owner has been a long time customer with an existing personal account with the company.
Do not submit different applications to two or three lending companies at the same time as doing so can only send a negative impression to each lender. Take note that with each loan application you send, an inquiry will be made, and all inquiries will be reflected in your report.