Getting a business loan is not an easy undertaking for small businesses. It’s easier for a large company to acquire a loan than it is for a small business. However, there are some things that small businesses can do to increase the chances of receiving the loan that they need.
Here are some tips that can help you get a good business loan:
1. Organize your documentation
For your business to qualify to receive flexible business loans, you need to show that it has been profitable for a minimum of 3 years. This is the most common requirement, although it varies slightly depending on the financial institution’s policies. The lender will want to verify your credit history as a business before they can decide whether they will loan you the money you need or not. As a business, being organized and ensuring that you have a great credit score will be of great benefit when you are trying to get a business loan. Being organized also means that you can guarantee the loan you are asking for.
2. Have sufficient cash flow
Before a bank lends you the money, you need to increase your credit score, or for other business-related purposes, they will need you to demonstrate that you have good cash flow and are in good financial standing. This to a lender helps them see whether you will be able to pay back the loan in regular monthly payments. The bank will assess your cash flow by analyzing your current debt as well as your tax returns. New businesses will need to have a detailed financial plan that includes financial projections that will show that the business will be able to make the monthly payments.
3. State the purpose of the loan
When applying for business loans, many companies neglect to say why they need the loan. If you are applying for a business loan, including the purpose of the loan can help the lender decide whether you are deserving of the loan or not. It is also important to talk about your business and tell the lender who you are as a business and what you have achieved so far. Highlighting some of your important plans for the growth of your business can entice the lender to give you the loan. Telling your story enhances your application and helps the lender decide which business will benefit more from the loan, and which one is more deserving of the loan.
4. Borrow from a local bank
For small businesses that may not have been profitable for the required three years, getting a loan from a national bank may be an uphill task. Going to a local bank may be a better idea as they are more likely to consider your application. You can also look into getting funding from SBA loan programs. These have more lenient terms, and about 80% of the loan is guaranteed by the government which is a relief if you do not have enough collateral for the loan you need. SBA loans usually take a long time to be processed because of government bureaucracy, and they require a lot of paperwork.
