Successfully applying for and having business loan eligibility is known to be notoriously difficult, but there are ways for business owners to improve their chances of getting their application approved.
Securing a business loan is one way for businesses to obtain additional funding, whether for capital or for equipment financing purposes. Institutions such as banks and alternative lenders usually offer this option for business owners.
However, small business owners are known to have a harder time applying for loans—bank requirements for a loan are usually too stringent.
Consider the following tips to improve your chances of getting a successful loan application:
- Gather all the necessary documentation
- Study loan requirements
- Review credit history
- Determine specific business needs
- Look for the best loan rates
- Develop a killer business plan
- Prepare collateral
Gather all the necessary documentation
The requirements for small business loans involve a lot of legal and financial documentation. Before applying, small business owners should first make sure that all paper requirements for small business loans are organised and in order.
The usual requirements needed for a loan include the following documents:
- Balance sheets and income statements
- Bank statements
- Income tax returns
- Driver’s license
- Business licenses
- Commercial leases (if any)
- Incorporation articles
- Business owner’s resume
- Financial projection documents (for businesses with limited operating history)
- Business insurance documents
- Product prototype design plan (if applicable)
- Competitor analysis documents
- Business plan
Business owners need these supporting documents as evidence on their business loan application. Failing to prepare these bank requirements for a loan could make the application process longer and lessen the chances of the loan approval.
Study loan requirements
Business owners should be proactive enough to know what is needed for a business loan ahead of time, even before the actual application process takes place.
While there are a lot of small business loan types and that different lenders have different requirements in the same way that they offer different rates, knowing these ahead of time gives business owners more time to develop a strategy on how they will be able to meet if not exceed all of these qualifications.
If a business owner is considering applying for a free government small business loan, they will have to meet additional qualifications required by the Australian government. While these are definitely free small business startup grants, applying for these kinds of loans are much more competitive—business owners must aim to exceed the minimum requirements to increase the chances of loan approval.
Review credit history
Having nothing less than a stellar credit history is one surefire way for business owners to increase their chances of a successful loan application. If the business owner has an impressive credit history, this will make them more eligible for a loan in the eyes of lenders.
A good credit history shows lenders the business’ ability to pay its dues completely and on time. Having a good credit history and a solid income statement also allows business owners to better negotiate with lenders.
However, this doesn’t mean that those with lower credit scores can’t do anything to improve. Improving credit scores starts will clearing all debt and paying bills on time. Once the business owner’s credit score goes up, this will be the best time for them to apply for a business loan.
If you can’t improve your credit score, there are various government grants available. As it is almost impossible to obtain a business loan without income, applying for certain government grants that can allow you to obtain the financing your business needs.
Determine specific business needs
Before obtaining a small business loan, business owners must first determine exactly what are the business’ needs. There are a lot of startup business loans for women and men catering to each business’ unique needs—knowing these needs helps business owners decide what kind of loan to apply for.
Consult the services of an accountant or a financial adviser when determining the exact need for a business loan. Not only can they help determine the right loan option, they can also help in devising fool-proof repayment strategies for the business.
Look for the best loan rates
While it is definitely a good thing if business owners are able to meet the requirements of business lenders, they should also consider the individual loan rates of lenders and if the repayment process allows them to have flexible repayment options or otherwise.
Loan repayments can influence the business’ monthly outflows until the loan gets fully repaid and failing to repay dues on time could lead to more problems for the business.
Since there are a lot of lenders that business owners can choose from, knowing the loan rates of these lenders also gives a bargaining advantage to make the lender’s rates more reasonable, more so if the business owner has high credit scores and can meet all of the necessary requirements.
Develop a killer business plan
Part of the application process includes lenders asking applicants details about how the borrowed money would be used. Business owners should develop a solid business plan outlining the purpose of the business loan, how the loan can help boost the business’ profits and how the business plans to repay the loan.
The plan must also include details such as the business’ current and projected financials and income statements—documents that may prove that the business has enough funding to repay the lender on time while allowing the business to be fully functional.
A killer business plan definitely boosts the lender’s confidence in the business and increases the applicant’s chances for approval.
Some lenders may require loan applicants to provide collateral as a means of backing up the loan. Collaterals can be anything from business assets, equipment and real estate which can be taken by the lender in case the business fails to pay the loan. This also allows lenders to recover the money lost once the repayment process fails.
While alternative lenders do not require collateral for loan applicants, they may require a personal guarantee, technically another form of collateral. If a business owner wants to apply for a loan without having to risk putting up an asset as loan collateral, ask your lender questions and negotiate your terms.
Otherwise, an unsecured business loan might be a good option for these kinds of businesses.