5 ways to improve your chances of getting business loans approved
As a small business owner, the process of getting a loan is perhaps one of the most overwhelming ones. It is often lengthy and requires considerable paperwork with stringent eligibility criteria. All in all, the process has several points of friction that can add to business owners’ anxieties. Everyday business operations are stressful enough, and the loan process unnecessarily adds to it. But it doesn’t have to be such a headache!
Here are 5 simple ways to significantly improve your chances of securing small business loans.
Build a healthy business
Think from a lender’s perspective; they want to lend you funds and make a profit from the interest you pay – provided you can pay! So, the slightest risk in your business plan or operations puts them off. To cover for this risk, they charge you a premium on the rate of interest. Clearly, a badly managed business or a poorly designed business plan will cost you!
Focus on building a healthy business plan that shows promise, or bootstrap the business for a few years with consistent growth. Before you start the loan process, create collaterals like a mission and vision statement, your business plan, a pitch deck, financial projections, a risk analysis document, etc., to show lenders that you’re serious about your business and their money is in safe hands.
Have a strong customer base
A good indication that a business is doing well, and will continue to do well, is its customer base. It also implies sales and can be used to project future growth and profit. Having an engaged customer base indicates growth, making lenders more willing to extend funds.
When approaching lenders, prepare a plan for how you will use part of the funds to continue growing your customer base. This usually means more marketing, promotions, and social media initiatives. This will also depend on the type of your business, the market you operate in, and your target audience. The more customers you acquire, the more you sell, the more profits you make – the more likely you are to pay back loans!
Clean up your credit score
Your business credit score can make or break your loan eligibility. It signifies your creditworthiness – how likely are you to pay your loans back, based on your financial history.
Keeping your business credit score high is easier than you think. All you have to do is keep paying your dues on time, borrow mindfully, and dispute any errors on your credit report as soon as you find them. It is like following best practices; you can’t go wrong as long as you stay on course!
It is important to note that your personal credit score can impact your business credit score. Though the two are distinct, the lines between the two can blur at times. So keep your personal credit history clean too!
Choose the right options
Today, business owners have access to several borrowing options; this includes various types of lenders as well as fund instruments. The most common choice is perhaps traditional lenders like banks. Many banks offer special schemes and loans for small businesses, but the process can be long and stringent in terms of qualification criteria. They also need a relatively higher business credit score and a clean personal financial record.
Other lending avenues include online lenders, venture capitalists, investors, etc. Online lenders are the most accessible, simple, and fast – you can get loans approved in minutes and get the funds in 24-48 hours. Many local governments also have support schemes for small businesses.
You can choose from startup loans, merchant cash advances, working capital loans, angel investment, crowdfunding, etc., depending on your business and needs. Whatever option you go for, it is crucial to select a credible lender and read the fine print to avoid future financial disasters.
Follow best practices, over and over
Excellence is said to be a habit, and building a business is no different. To achieve success, you must be willing to forgo the shortcuts and put in the hard work repeatedly. Irrespective of whether you are looking to secure a loan, having strong business ethics will reflect in your products and services, in your employees’ commitment to your business, and your customers’ loyalty.
These intangibles are hard to fake, and lenders know this! They want to associate with business owners who are responsible and reliable, so your reputation counts. In fact, many investors and venture capitalists have scouts that keep an eye out for up and coming businesses in a variety of sectors. Only the best come under their radar, so your pursuit of excellence might pay off big!