As a small business owner, you may have applied for a small business loan to keep your company going throughout this challenging time, purchase new equipment, or scale-up in some way. It may even be to get your business off the ground so that you can turn a profit. Applying for a business loan is no different than applying for a personal loan in that your application needs to prove that you can pay back the loan with interest in a timely manner, you need to produce the right documentation, and look around for suitable lenders. To help you get your business loan application approved, take a look at what you need to know.
Tips to Get Your Business Loan Approved
How do you qualify for a small business loan?
Firstly, lenders are interested in your ability to repay the loan with interest on time. Demonstrating your ability to do so is the most important aspect of qualifying for a small business loan. You should be ready – with paperwork – to show a history of steady, strong cash flow or a business plan with a likelihood of sufficient cash flow to repay the debt. A healthy credit score is necessary, too. Lenders will pull your credit report when you apply for a loan, and having a poor score with a bad report could hurt your chance of a business loan being approved.
Lenders will also look at your debt-to-income ratio, which is the measurement of how much money you are bringing in versus how much money you already owe. Your debt-to-income ratio demonstrates how leveraged your business already is, so a lower ratio typically suggests that your business has a better ability to repay additional financing.
Tips for improving your chances of being approved
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Check your credit before the lender does
Get a full credit report and check it over meticulously. If there are any errors in the report, you will need to correct them before applying for any loans of any kind. The process of correcting your report can take time, so get started on this as quickly as possible.
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Show you have a ‘healthy’ business
One of the largest challenges in business is getting yours to thrive, not just run. Lenders will be interested in your gross monthly revenue, cash flow, and overall success. Remember that even things like whether your business pays the rent on time will be a factor. The more stable you can show your cash flow to be, the less risk lenders will see in approving your application. That said, lenders are well aware that the past few months have been incredibly stressful for many businesses, so it’s worth working with a lender who is considerate of the fact a pandemic may have hit your overall profit.
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Work with the right lender
When looking for a small business loan, you will run into hundreds of different lenders. Looking through all of them can quickly become overwhelming. You could go through the painstaking process of examining each one and figuring out if you qualify, or you can use EDC’s Loan program. As a community-based lender, the EDC offers both new and existing businesses a wide range of loan products to help ensure competitive growth for businesses in many different types of industries.
There are many ways to ensure your business loan application gets approved, and these are just a few of them. For more guidance on growing your own business, contact the Economic Development Collaborative. Conveniently located in Camarillo, California, we’re here to help and have a webpage devoted to resources and information on how your business can handle the COVID-19 pandemic.
