Getting a loan for a small business can be a frustrating ordeal. It is painful to be rejected, and it is almost as bad to be told they’ll offer you less than you wanted. However, there are steps you can take to minimise this risk. Here are six ways you can increase your chances of landing a small business loan. We’ll focus on practical tips that can be followed by any small business.
Don’t exaggerate your sales projections or business income to lenders. They don’t want to hear your best-case scenario. They want to hear your actual income and money-making potential. If you are seen to be hiding unpleasant truths or exaggerating successes, they’ll reject your loan.
The solution is to be open and honest. Only put accurate information on your application, provide all of the information they requested, and put down realistic projections. Then back up these numbers. Present tax returns, balance sheets, bank statements, and whatever other documentation is required to prove the numbers are accurate. Providing this information also shows that your firm is financially responsible.
Have a Solid Business Plan
If you don’t have a business plan, odds are that your business loan will be rejected. On the other hand, a business plan shows that you are serious, have a plan, and know how you’re going to execute it. This plan should include marketing, customer service, and production.
Be willing to get good advice to improve your business plan. And you may want an expert to guide you through the business loan application process, too. You may learn that you need to increase revenue growth or otherwise improve your business to get approved. For example, lenders want to see at least ten percent revenue growth.
Invest Your Own Money in the Business
Lenders will reject loans when the risk is too great. If you’re investing some of your own money into the business, that risk is lessened. First, it shows that you’re not asking them to take all the risk. Second, it increases the odds you’ll work hard to protect your equity in the business. You should have at least 25 percent equity in the business for lenders to consider funding your venture. The alternative is to back the business debt with a personal guarantee or collateral.
Consider All Options
Don’t assume you have to beg for a loan from your local bank. Consider all of the options. For example, check out online lenders. Online business funding brokerage services give business owners access to alternative sources of money. They usually don’t put as much emphasis on credit scores, and they may not require collateral for a secured loan.
Be realistic in the goals you set. For example, you shouldn’t apply for a massive loan when this isn’t necessary. Determine how much money you need and have a good case to defend the request. A modest application with proper justification is much more likely to be approved. And if you manage the money well, you’re more likely to be approved for a larger loan later. After all, you’ll have proven you can manage your finances.
Finding a loan for your small business may be difficult, but there are more options available today than there’s ever been. While these tips won’t guarantee that you’ll be approved, they will improve the odds your loan request is approved for the amount you requested.