1. Explore Your Options
Shop around before you settle on a lending institution and don’t settle on your bank as the first choice. You should compare interest rates, payment plans, and additional fees across various lending institutions to identify the one best suited for you.
While a large bank may seem to be more willing to finance your business because it can take on more risk, you can open yourself up to personalized service or better loan terms with a smaller lender. Therefore, keep an open mind when looking for a lending institution to finance your business.
2. Have a Clear Plan for Utilizing the Funds
It’s best to think about how you will utilize the funds before approaching a lender. To have a better chance of getting your credit application approved, you need to clearly demonstrate the viability of your business and how you will appropriately use the funds to grow your business.
Lenders may be more flexible giving credit to borrowers who can demonstrate how the loan will generate cash, showing evidence of purchasing inventory, purchasing equipment, and marketing are some smart ways to use a business loan to generate money.
3. Research and Identify a Loan Suitable for Your Business
Understanding the type of loan that is ideal for your business is essential, it will depend on various factors such as the nature of your business, the repayment plan, the lending amount, and the loan’s specific terms.
Some of the most common types of small business loans include Small Business Administration (SBA) loans, accounts receivable financing, small business term loans, equipment loans, working capital loans, small business credit cards, and small business lines of credit.
The features of these types of loans differ, some of them may be better for your business than others. Therefore, before you settle on a loan option, do extensive research, and identify the option most suitable for your business.
For example, if you only need a loan to cover short-term operational needs, a working capital loan is ideal however, if you need a loan to purchase specialized equipment then an equipment loan would be more appropriate.
4. Prepare Your Financial Statements
Lending requirements vary from one lending institution to another however, most will request to view your financial statements and accounting records before offering you credit. To make the application process smoother have your financials in order, ensuring they are correct and complete. Not only does this demonstrate transparency, but it may also boost your creditworthiness.
Important documents needed include income and loss statements, cash flow statements, balance sheets, and previous tax returns which provide the lender with a vivid picture of the performance of your business. For example, the cash flow statements will show whether your business can fulfill its potential debt obligations.
Before approaching a lender, anticipate any questions concerning your financials and be prepared with appropriate answers.
5. Keep a Good Credit Score
Before offering you credit, most lending institutions will examine your credit history and risk profile as the lender needs to ascertain whether or not you’re a credible borrower who will settle the loan before extending an offer. Ensure you have a good credit score before applying for a loan by settling any existing debts and maintaining a consistent payment schedule.
Furthermore, to determine your credit score the lender may take a closer look at your business’s assets, your outstanding loans, your company’s investors, and the amount of time your business has been running. If these factors are favorable, the lender may be more likely to approve your credit application.
6. Improve Your Online Presence
After speaking to you, the lender is likely to scour the internet to uncover more about your business. With that in mind, ensure the information on your business website and social media pages is correct, up-to-date, and professional looking.
Furthermore, check your online reputation on review sites to ensure your business has some positive reviews.