How to Improve Your Chances of Being Approved for a Business Loan
Business Loan Articles > Article: How to Improve Your Chances of Being Approved for a Business LoanApplying for a business loan can be intimidating; however, business owners will have a much easier time navigating the loan application process when they know what to expect and are armed with the right information and documentation. Below are specific steps you can take to improve your chances of being approved for a business loan.
1. Be prepared to demonstrate a record of natural cash flow.
Banks and lenders love to loan money to businesses with a secure financial history, and cash flow is one of the best indicators of financial security. A cash flow reveals to the bank that you have a source of income with which to repay the loan. If you can establish a history of a natural cash flow, banks will be inclined to improve your loan more readily. Two to three business activity statements will also increase your odds of being approved for a business loan.
2. Understand your assets and liabilities.
The more assets you have, the more money you will be able to borrow for your business. Both personal and business assets can be used to secure a personal loan. Assets can include: vehicles, business equipment, investments, cash, furniture, and personal and business real estate. Debts owed to you or your business can also be considered assets. Complete a thorough audit of your business and personal assets to create a record for the bank. Again, the more assets that you own or control, the more money you can borrow for your business. Conversely, if your liabilities outweigh your assets, getting approved for a business loan will be more difficult.
3. Clean up existing credit accounts.
If you have any problems with a current lender or creditor, resolve those issues as soon as possible. Business loan providers want to see a clean personal and professional credit history. A clean record of timely payments will help you secure business credit, and demonstrate your ability to repay future debts.
4. Bring the right documents when you apply.
Being prepared for the application process by having the appropriate documents available can improve your chances of being approved for the business loan and speed up the application process. Banks will generally require applicants to present:
- Cashflow worksheets
- Financial forecasts
- The business budget
- Financial statements
- Business contracts
- A business profile, which includes:
- Business type
- Company's annual sales
- Total number of employees
- Profit and loss statement
- Information regarding the length of time the company has been in business
- Details about recent ownership history
If the company is a startup, the owner will also need to provide his or her business plans. Some lenders may also require personal financial statements and business financial statements for the preceding three years.
5. Offer collateral for your loan.
While an unsecured loan (which requires no collateral) may represent less risk to the borrower, these types of loans are harder to get approved for and often carry higher rates of interest because of the increased risk to the lender. A secured loan, on the other hand, is easier to get approved for and carries a lower rate of interest. Many new business owners offer their personal home as security, but other assets such as cars, investments, or other property are also acceptable collateral.
6. Have your business books reviewed by someone other than your in-house bookkeeper.
Errors in your basic bookkeeping can prevent a business loan from being approved by lenders. If your company's business accounts are not accurate and up to date, the lender will naturally question your ability to manage your business' money, much less the new loan funds being applied for. Ensure that all accounts are reconciled (i.e. costs are allocated properly, accounts receivables total is the same as the figure on the balance sheet) prior to submitting a business loan application.
Getting approved for a business loan does not have to be a struggle. Business owners can take steps to improve their chances of getting the funds they need to invest and expand their companies. Prior to applying for the loan, make sure your financials are in order and properly documented, consider offering collateral for your loan, clean up existing credit accounts, complete asset and liability worksheets, and have your books reviewed by an outside professional. Making the effort to complete these tasks will help the business loan application process run more smoothly and ensure that you secure the business loan with ease.
