The ability to acquire a business loan is a necessity for small businesses. They can use the loan to boost their capital and then put it towards funding company’s day-to-day expenses, inventory, equipment, renovations, expansion, and more.
Small businesses are the backbone of the country’s economy. However, they’re also one of the most difficult companies to jumpstart. Considering the strict requirements that traditional lenders have imposed, getting a small business loan from banks and credit unions may not be a smooth process to go through.
Fortunately, there’s something you can do to make the process bearable. The secret is to come prepared. If the lenders see that you’ve taken enough time to prepare your documents and requirements, you might just increase your chances of a business loan instant approval.
Here, we’ll outline how you can make your business loan application process as smooth as possible:
1. Update your finances
Showing an accurate record of your finances is vital in the loan application process. Banks and other lenders want to know where you stand financially for them to ascertain whether or not you can afford the loan repayments. Before going to the lender to apply, organize all of your finances and make sure they are up-to-date. If you can, outsource accounting services to help you with managing your company’s finances.
To get your loan application to a good start, provide at least three years of personal and business tax returns. You’ll also need to provide other financial statements like cash flow statements, balance sheets, and sales projections. The better your numbers are, the higher your chances are of getting approval because of your financial stability.
A well-written marketing and business plan could also increase your odds of approval. This will help the lenders know how you’ll run your business, make a profit, and show them that you will be able to repay the loan and meet other financial obligations.
2. Maintain a good credit score
One thing worth noting about business loan applications is that a good credit score can make the difference between loan rejection and approval. When assessing a potential client, a lender will always take a careful look at your credit report to evaluate your creditworthiness. It will help them determine whether you’re a good lending risk or not.
If they find your credit score too low, they’re either going to reject your application or offer you a loan with less favorable payment terms (i.e., higher interest rates). On the other hand, if your credit score falls in between what lenders consider as good or excellent credit scores (above 680), then you have a higher chance of approval. Not only that, but the lenders could also offer you excellent payment terms since you’ll be considered a low-risk borrower.
3. Find the right lender
No two businesses offer the same products. In the same way, financing companies may offer different rates, payment periods, and other terms for business loans. They may also have additional borrower requirements. Some may only lend to businesses that show healthy financials, while others may not care so much about it and focus more on the business’ credit score when granting loans.
As part of your loan application’s planning process, see if they’ve worked with businesses similar to yours in the past. Find out what their requirements are and try to see if you’ll qualify for the loans they offer before putting all the effort and going through with the application process. Try to ask what terms they can offer based on your financial statements and credit rating.
Taking out additional debt for your company is always a big step for the company. With that, you want to make sure that you’re working with reputable lenders who can offer you loan terms that your business can afford.
4. Get all the documents ready
Once you’ve decided on a loan and have narrowed down your lender of choice, find out what documents they need for the business loan application. Although the documents will vary from one lender to the next, here’s a quick rundown of the papers they will probably need:
- Cash flow statements
- Bank statements (personal and business)
- Tax returns (personal and business) for the past three years
- Profit and loss statements
- Balance sheets
- Business permits and registrations
- Franchise agreements (if applicable)
- Certificate of affiliations
- Owner’s resume
- Documents for collateral
- Articles of incorporation
Other lenders may not ask for all of these documents, but it’s better to get these ready beforehand. This way, when they do ask for additional document for verification, you can provide them immediately, and the lenders can proceed with the application process quickly.
5. Provide a detailed specification for the business loan
When applying for a loan, be straightforward. State the specific reason why you need the loan. Do you need it for additional inventory? To buy equipment? Cover short-term cash flow gaps? Business expansion? Whatever it is, give the banks a concrete reason you need the extra capital, and don’t forget to emphasize how it will benefit your business.
It’s also important to be realistic about the amount of the loan you’re planning to take out. Don’t just guess the loan amount. Carve some time out of your busy schedule, sit down, and crunch the numbers. If you need equipment, like a crane or bulldozer, ask for a quote from the dealer. Include the other fees like shipping/handling, tax, or the cost of the training required to handle the equipment.
Account for every cent, if possible. Lenders want to see that they’re working with responsible borrowers who know why they need a loan and how much money they need to see their business scale and succeed.
Applying for a loan is a big deal, and you can’t just rely on good luck for approval. Organize your finances, know what the lenders need, and ensure that your numbers indicate excellent performance. Once you manage to keep it all in line, your business loan application process should go down smoothly.