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.
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.