How to Increase Your Chances of Qualifying for a Small Business Loan
- October 26, 2020
- Written by : REIL Capital
Applying for a small business loan, whether through a lender or the SBA, it can be intimidating for small business owners.
There is always a question of â€œwill I qualify?â€
Luckily, lenders look at far more than just a credit score or how much money you have in the bank. They pay attention to how you run your business, how you manage your finances, and how you plan to allocate funds in the future.
With this being said, letâ€™s take a look at what lenders look for, what makes you a better candidate, and how you can increase your chances of qualifying before you even apply.
What do lenders look for?
This one is a no-brainer; lenders look for the lowest risk candidates. What exactly does that mean though?
- Ongoing working relationship: you know your potential lender and may have dealt with finances or borrowed money in the past from this person or group. There is an element of trust that goes into choosing the proper candidate.
- Good company reputation: your companyâ€™s history, references, and reputation play a big role in the decision making process.
- Low-risk industry: if your company operates in a high-risk or high-maintenance industry, then a bank may turn down your loan request. The more likely that your industry will not take a sudden sharp turn, the greater your chances of acceptance.
What makes you a better candidate, personally?
Besides meeting all of the requirements of the specific lender or the SBA, there are also a number of things to be aware of that make you a stronger candidate. The following have a bit more to do with your personal life, than business.
- Money management: how do you speak about your money management? Do you take it seriously and spend wisely? Are you currently and successfully managing the finances in your business? Show your potential lender that you are responsible when it comes to spending.
- Good personal credit: a big shock for some candidates is that your personal credit matters just as much, if not more, than your business credit. Personal credit directly affect the candidate, and therefore holds greater value to that individual. If youâ€™ve been handling money wisely in your personal life, you will more than likely do the same with your business.
What can you do to increase your chances for qualifying?
Now that youâ€™re aware of what is required, Iâ€™m sure youâ€™re wondering how you can get ahead of the game and increase your chances for qualifying. After all, meeting the requirements is step one of the process; the next step is adding to your value, which can move you from on the fence to acceptance.
- Having collateral: This is a game changer and proves that even in unpredicted and/or poor circumstances, you are still able to repay your loan. The type of collateral depends on your current business assets; examples of this are real estate properties, vehicles, equipment, and more. Banks typically require collateral regardless of your standing or future predictions in the industry.
- Mapped out plan: how are you going to allocate these funds? Do you have a solid plan set in place? Lenders want to know not only how you will spend the money, but also most importantly, how they will get it back.
We hope you have a clearer answer and feel more prepared prior to applying for a small business loan.
Weâ€™ve been through it ourselves and know how overwhelming and intimidating the loan process can be. Weâ€™re a family of experts that you can trust and count on. We want you to succeed, and not struggle to do so.
REIL Capital is on your side.