Loans are an important financial tool that every small business owner should take advantage of at some point. For some, loaning from a trusted lender is the only way to get their small business off the ground.
Meanwhile, established businesses can use loans to expand their operations, finance research and development, explore new territories, ramp up marketing efforts, and even survive tough financial crises.
A Chron.com report highlights how only 51 percent of businesses last more than five years. If you find yourself in a tough financial spot and want your business to last in the marketplace, you should be open to taking out a small business loan.
Here, we’ve listed four tips that will help you get approved for a small business loan.
Have a robust business plan
When taking out a business loan, lenders want to know why you want to borrow from them. In addition, they’re also going to check how you’ll be able to repay the loan.
One way to show a lender that you’re worthy of their trust is by creating a foolproof business plan. Through this, you can highlight the purpose of the loan, as well as detail how your business will gain the cash flow required to finance operational expenses and loan payments.
If you’re able to demonstrate the required information clearly in your business plan, a lender will have more confidence in trusting you.
Gather all the documents you need
Lenders and banks will require you to submit a ton of paperwork when you apply for a small business loan. This may include business licenses, income statements, bank statements, articles of incorporation, commercial leases, and financial projections. In order to streamline the application process, make sure you have all of the documents ready.
Fix your personal credit
In order to assess your creditworthiness and see how well you manage debt, a lender or bank may require you to show your personal credit score.
If you’re aware of what your current credit score is, you can get a free copy of your credit reports at AnnualCreditReport.com. Credit scores usually range from 300 to 850. If you fall in the lower end of the range, media organization NPR advises that you boost your credit score by riding on the coattails of a friend or family member with good credit. Once they add you to their credit card as an authorized user, you also get to inherit a good credit score from that particular card.
You can also improve your credit score by paying your bills on time, limiting your credit utilization, and consolidating your debt.
Prepare to provide collateral
Some lenders will ask you to provide collateral before qualifying you for their loan. Simply put, business collateral is an asset that can be taken by a lender in case you fail to pay your loan properly.
Online financial resource AskMoney.com posts regularly on how to maximize loans, and their guides highlight how some assets can be used as collateral, such as your home, your vehicle, and your investments.
If your lender asks you to provide collateral, you should remember that any asset you use will be put at risk. So, be sure to weigh up your options and only push through with the loan if you’re comfortable losing your assets in case the worst comes to worst.
For more news and insights on finance, entrepreneurship, and small businesses, be sure to have a look at our posts here on EntrepreneurMindz.com.
Finley Gilbert is a social entrepreneur and writer by profession. He covers entrepreneur, business and startup stories for EntrepreneurMindz.com