Increasing the Odds: How to Gain Approval on Business Loans
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UPDATED: Dec 18, 2012
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The current economy, although on a steady rise, still poses hurdles for new and existing businesses to receive funding.
But there are ways to increase the odds of bank approval.
Although each bank has its own policy for new business loans, there are similarities at most banks that will increase a potential borrower’s chances of approval. Beyond the more obvious methods, such as providing collateral and positive financial information, there are other less-known ways to increase a borrower’s chances of approval for business lending.
Research Potential Lenders
There are business lenders for every kind of audience and market. Picking the right-sizes lending institution will help.
Requesting a business loan from a large bank might not be the best option for a small business that wants more personalized service. Similarly, if a business owner simply wants a low interest rate, a larger bank might be the most feasible option.
Potential borrowers should review several lenders of different types and discuss each of those lending options with bank employees. Only after all options have been reviewed should a borrower proceed with the new business loan application.
Improve Business Credit
When lending institutions approve or deny a new business loan, their decisions depends greatly on the borrower or business’ current credit. Businesses, although financially linked to an owner, still have their own credit histories.
It is important for business owners to treat their business’ credit as they would treat their own credit. If the lending or debt history is sparse, applying for a small business credit card could help improve that credit score over time.
Lenders want to know that an owner is responsible and will repay their business loan; having a solid financial history illustrates this.
Paying attention to minor details is what separates average companies from outstanding companies.
And many banks know this.
Any sort of inconsistency with financial documents will cause concern with lending companies. Financial documents, revenue reports, and employee expenses should all be recorded for later review. If a business owner is financially able to afford an accountant or bookkeeper to oversee records, he or she should. Disregarding details will signal to lenders that a disruption of order is present in the company, and it could threaten the new business loan approval.
Have a Successor
No one wants the worst to happen, but, at the least, every business owner should prepare for it.
If a business owner becomes sick, incapacitated, or dies, then that individual’s business will not continue unless a successor is set into action. Picking out a successor is like picking out insurance. You want to find a great fit, but you hope you never have to use it.
Lenders appreciate this level of commitment to a business; by labeling a future owner or manager, lenders see that their business loan is more likely to be repaid.
Account for Flexibility
No plan is exact. Every smart business owner knows that there are always variables to running a business. Even with heavy accounting and forecasts, there is still potential for minor fluctuations.
A good business accepts these fluctuations and manages to make a profit at year’s end. The goal is to embrace changing markets and prepare for both the good and bad.
Every small business cannot be a huge success. Not every business has the capacity or the ideas to morph into a large corporation. Some businesses remain small and bring in enough profit to keep them going, but that does not mean they are failures.
Banks understand small business and they are open to small lending. But they will only partner with realistic and level-headed borrowers.
If a small delicatessen truthfully projects profits at $75,000 per year rather than lying and stating that $500,000 in profits is attainable, a lending institution will see that the owner is realistic and clear-minded about their actual business, not their dream goals.
If the borrower is on the same path, the agreement will progress in a smoother fashion.
Although providing financial history and labeling collateral is necessary for a new business loan, if new borrowers follow the off-beat tips listed, they will not only increase their chances of being approved for a new loan, but they increase their chances at business success.