Does your business need money for things like inventory, real estate, advertising or staff? Are you worried your credit isn’t up to snuff to get a loan or your business is too new to get a loan? While it might seem like there is no easy way to get the money that your business needs, there are actually things that you can do to make this process less painful. A little bit of time, thought and research on your end can result in your business getting the best loan possible for your company’s needs.
And while everyone’s financial situation is different and there is no single formula to getting approved for a loan, there are some best practices you can follow that can make the process easier on you and increase the chances that you are approved for a loan that is well-suited for your business and what you need the loan for. So, here are five simple things to make getting small business loans easier:
1. Improved Credit
The first and most obvious thing that you can do to make getting a small business loan easier is to improve your personal and or/or business credit scores. Your credit score is often one of the first things that lenders look at when considering your loan application. And they often don’t just look at your business credit score, but your personal credit score, too.
Your credit score is mostly based on the amount of debt you have and your payment history. So, if you have a lot of debt and have had trouble paying it off and have missed a few payments, odds are that your credit score isn’t the highest it could be. Lenders prefer to lend money to people with credit scores above 680, with an ideal score of 720 or higher as it indicates the likelihood that the person will repay the loan. If your score is lower than this, then it’s a good idea to take some steps to raise your score before applying for a loan. By making sure that you make your payments on time, decrease your balances and limit taking on any other new debt while searching for a business loan.
2. Find a Cosigner
If your credit isn’t up to par and making a few changes won’t make a big enough difference, you may need to consider using a cosigner. Obviously, this isn’t an option for everyone either because they don’t know someone who has good credit or they aren’t comfortable asking someone that they know to basically become responsible for the loan if they become unable to pay it off. But it can be a good option for those that are able to utilize it and have someone in their life willing to put this kind of trust in the relationship.
A cosigner needs to have a good credit score and be able to pay off the loan if you can’t. This is a good option if you have the cash flow to cover the payments but might have a spotty credit history or haven’t been in operation for a long time. Just make sure you work out the details beforehand as a cosigner situation gone awry could ruin a relationship forever.
3. Put Up Collateral
The next thing that you can do to make getting small business loans easier is to pledge collateral towards your loan amount. With secured loans, lenders can use your assets as collateral towards your loan if you are unable to pay it off.
Some things that you might be able to put up as collateral include real estate, equipment, vehicles or something else of value depending on the lender. However, it’s important to remember that many lenders will only approve a loan up to a certain percentage of the value of the collateral — so make sure to know this amount beforehand so you don’t end up with less money than you planned. Also, keep in mind that some business loans are unsecured loans and the lender may not accept collateral at all.
4. Increase Cash Flow
Another thing that you can do to make getting small business loans easier is to increase the cash flow of your business. Cash flow is a good indication to a lender that you will have enough money to repay your loan. While this is obviously easier said than done, there are actually so many strategies that can help you increase the cash flow of your business. Not only will this make it more likely that your loan application gets approved but helps your business as well – so it’s a win-win!
5. Consider Alternative Lenders
The last thing that you can do to make getting small business loans easier is to consider alternative lending options. Back in the old days, the best way to get a small business loan was to make an appointment with a lender at a big bank, get dressed up in a fancy suit, carry in a big portfolio with all your documents and hope for the best. And while this is still an option, the strict requirements and lengthy turnaround times can make it unrealistic for many businesses who are just starting out and need cash fast. Instead, consider alternative options that have no restrictions on what you can spend the loan on, can get you your money fast and reviews factors other than your credit score when considering your loan.
Depending on your business, these options might be better suited to your company than using a big traditional bank.
The Bottom Line
The process of getting a business loan can be as easy or as difficult as you make it. As the applicant, you have more power to improve your chances of getting approved than you may think. By taking active steps like those outlined here, you’ll know that you’ve done everything you can to qualify for a business loan. And if your application is still rejected, then go back to the drawing board and complete some additional steps to get a business loan.