All You Need to Know About Getting Approved for a Business Loan

Getting approved for a business loan can be difficult at the best of times, but in the current financial market, some banks are refusing to lend – regardless of your financial background. Lending to larger companies and commercial companies is on the rise, but lending to small businesses can fluctuate depending on where in the world you are. Banks want to lend, but many smaller banks may not have the resources to lend and support small businesses. Even if you think that you meet all of the criteria, you might not – and banks may well decline your application simply because you don’t meet one very small criteria. Before applying for a business loan, it’s important that you get yourself organized so that your loan can be processed – and hopefully, approved – as soon as possible.

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Get Everything in Order

Before applying for a loan, it’s important that you get your finances in order. Although most companies need a loan in order to expand or grow, many lenders will not lend any money unless your company has been somewhat profitable for the last three years – at least. So get your books in order and take a good hard look at your credit report. If there are any errors – anywhere – you need to address them and ensure that they get fixed. Errors on your credit report can take months to fix, so spot them as early as possible and contact the credit report agency to get them sorted. If there are any serious issues on your file, such as CCJs or defaults, you can add a notice of correction to explain exactly why that issue is on your file. It’s imperative that your credit file is in good shape and if not, you need to fix it before you apply for the loan.

Explain WHY You Need the Loan

Instead of just filing an application and waiting for your loan to be accepted, explain to your bank exactly why you want the loan and what that loan could do for your company. Refusing to explain why you need the loan will more than likely result in your application being declined – it’s as simple as that. Put together a business pitch and demonstrate why you need that amount of money, how you plan to spend the money, what the money will do for your business and where your see your business headed over the next five years, the bank will be much more likely to seriously consider your application. Highlight past investment successes within your business and back yourself up with account statements.

It’s also a good idea to give the bank a comprehensive overview of the day to day running of your company. For example, who will be running the company, how the business will operate, the experience of the managers and owners and how you plan to train and hire new staff. It’s also important to provide projections – but make them realistic and provide data to back yourself up.

Have a Secondary Source of Repayment

Some lenders are looking for at least two sources of repayment, and if you’re setting up a business or looking to expand your company, this could involve repayment from investments, from your salary or from the profits that you expect the business to make. Most banks will prefer a solid and guaranteed form of repayment, rather than projected future earnings, so make sure that you have the funds to pay the loan back. Don’t quit your day job!

Some lenders will also want to have something to secure the loan against – a large piece of collateral, such as a home, property or business premises that they can sell if you fail to make the repayments. If you don’t own your own home, or if you have collateral that isn’t valuable, you might find it tricky to get accepted.

Bring Everything to the Table

Most lenders will require a lot of supporting information before they’ll be willing to lend any money, such as personal financial information, tax returns, bank statements, profit reports and more. Most banks will also need data that proves that you live at your address, such as two or three bills that are addressed to you at your home. Get all of this information in order and bring everything to the table so that your loan application can be put through as quickly as possible.

When it comes to getting approved for a loan, you really need to pay attention to the smallest details – check and recheck your application to make sure you’ve included everything that you need to include, ensure that the bank will have a complete overview of your character and of what you plan to do with the money and that your credit report is squeaky clean. Following these tips should definitely increase your chances of approval – but if you still fail to get approved? Ask the bank why they declined your application and  if they can’t give you any answers, wait for at least three months before applying elsewhere.

How to Get Preapproved for a Loan

Preapproval is the process of getting approved for a loan before you even apply. Preapproval is essential for people with less than perfect credit scores, as each time you apply for a loan, it appears on your credit report and it can even reduce your score – and if you apply for multiple loans and are declined each time, your score could plummet. Preapproval means that you don’t actually have to apply in order to be approved, meaning that your credit score isn’t affected. Here’s how to get preapproved for a loan.

 

Know Your Credit

Your credit score is key in getting a loan, but knowing your credit score is not enough. You need to take a good look at your credit report so that you can clearly see what might be putting potential lenders off – and then you can fix it. For example, if there are any errors or mistakes on your file, or if there is any incorrect information, it could lower your score. Incorrect or incomplete addresses and a missing home telephone number could also lower your score, so ensure that all of the information is correct, and if not, change it. Keep in mind that it could take some time to rectify any errors on your credit report, so you should get started at least a few months before you need the loan.

 

Find a Good Lender

There are literally thousands of lenders out there, many of which will be willing to preapprove you for a loan before you go ahead and apply. Find the right lender for you and you’ll be much more likely to get accepted. If you have poor credit, but a good income, there’ll be a lender for you. Equally, if you have poor credit and a poor income but can prove that you can pay back the loan, there will still be a lender for you. Find the right lender for you and you’ll be much more likely to get preapproved, so do your homework.

 

Get Prepared

You’ll be asked about your income, your outgoings and possibly your tax status when applying for a loan. You’ll also need to have to hand bills that have been addressed to you at your current address in order to prove that you live where you say you live, and you’ll also need to provide information about what you actually want to buy with that loan. If you’re buying a car, for example, outline  the model, make, and year of the car that you’re planning to buy instead of just saying, “I want to buy a car”. The better prepared you are, the more of a genuine prospect you’ll appear to be and this should help you sail through the preapproval stage and beyond.

 

Apply!

You need to apply to be preapproved; it doesn’t just happen! Find lenders that are willing to offer preapproval status and send out an application. Once you have been preapproved, and once lenders have acknowledged that you’re a safe risk, you’ll be able to go on to apply for a loan without having to worry about it affecting your credit score if you get declined.

 

Remember, preapproval status doesn’t last forever. Once you’re preapproved, you have to apply right away in order to be considered for a loan. If you wait for even just a few months, you’ll have to start the process all over again, so be quick.