Business Loan Approval Tips for Small Businesses

What Lenders Actually Look at When You Apply for a Business Loan

Getting a business loan for your small business is a whole different process than applying for a personal loan bad credit because lenders are not just looking at your personal credit score they are digging into your business financials your industry your time in business and a bunch of other factors that tell them whether lending you money is a smart bet or a risky gamble. The first thing any business loan lender looks at is your personal credit score because small business lending is tied closely to the owner’s personal creditworthiness and if your personal credit is trashed you are going to have a really hard time getting a business loan regardless of how well your business is doing. Your time in business is another huge factor for business loan approval and most traditional lenders want to see at least two years of operating history with consistent revenue before they will even consider your business loan application and startups have to look at alternative funding options like SBA loan assistance programs designed for newer businesses. The revenue and profitability of your business are obviously critical to a business loan decision because the lender wants to see that your business generates enough cash flow to comfortably make the loan payments on top of your other operating expenses like commercial auto insurance payroll and rent. Your industry matters for business loan approval too because some industries are considered higher risk by lenders and if you are in a volatile industry or one with high failure rates you might face more scrutiny or higher rates on your business loan. Lenders also look at your debt to income ratio and your existing debt obligations because if you already have a merchant cash advance or other high cost debt that is eating up your cash flow a new business loan lender is going to be nervous about adding more debt to the pile.

How to Prepare Your Business Loan Application So It Gets Approved Fast

Preparing a strong business loan application before you ever talk to a lender dramatically increases your chances of getting approved and getting favorable terms and the preparation is mostly about having your paperwork in order and being able to tell a clear compelling story about your business with numbers to back it up. Get your financial statements in order before you apply for a business loan including your profit and loss statements balance sheets and cash flow statements for at least the past two years and make sure they are accurate and consistent because a lender will tear apart sloppy financials. Your business plan is an important part of a business loan application especially if you are a newer business or you are seeking financing for expansion and the plan should clearly explain what the business loan funds will be used for and how that investment will generate enough additional revenue to repay the loan. Tax returns for both your business and personally are standard requirements for a business loan application and if you have not been filing your taxes or you have been underreporting income to save on taxes that is going to bite you now because the lender will use your tax returns to verify your income and if they do not match what you claimed on your application you will be denied. If you are considering SBA loan assistance the preparation requirements are even more extensive but the terms are usually better than conventional business loan options so the extra paperwork is worth it for many small business owners. And before you apply for a business loan shop around and compare offers from multiple lenders because different banks and online lenders have different criteria and risk appetites and getting multiple business loan quotes helps you find the best terms for your specific situation.