Some small businesses are started on funds borrowed from friends and family; others are bootstrapped while the owner is still working a nine-to-five. But, as a business grows, the need for a business loan will probably arise. Traditional business loans are ideal for situations when a business needs to borrow a substantial amount of money, as they offer long-term financing and reasonable interest rates.
But, many small-business owners have heard that qualifying for a business loan is quite difficult. While traditional lenders’ criteria tends to be much more stringent than that of alternative lenders or friends and family, there are plenty of actions that small-business owners can take to help their businesses qualify for business loans. So, what can those seeking traditional business loans do, in order to increase their odds of success?
Get Your Finances in Order
For those who are trying to qualify for a business loan using their only their business credit, making sure the business’s credit rating is as favorable as possible before applying for a loan is a must. Even those with extensive business credit track histories should review their credit reports for errors and make sure all of their vendors are reporting their favorable payment histories.
If certain vendors can’t be bothered to furnish data to the business credit bureaus, business owners may be able to add positive payment experiences to their own credit files, through the CreditBuilderTM service from Dun & Bradstreet, which also provides alerts to any changes on a business’s credit report. Of course, monitoring the business credit rating before applying for a loan is essential, as well, and this service kills two birds with one stone.
There is always the chance that the lender will be unwilling to extend an unsecured loan based solely on the business’s credit rating, so business owners should be thinking about possible sources of collateral, and should groom and monitor their personal credit, in case signing a personal guarantee is the only option.
Make Your Case
A business loan applicant must convince prospective lenders that their business is worth taking a risk. A solid business plan goes a long way in this department, even for established businesses. Lenders will want to know the specific purpose of the loan, so small-business owners should be prepared to give a full explanation of how the loan money will be used, and how it will help the business to become more profitable.
The business’s principals should be prepared to field questions relating to their background and character, and should prepare thorough financial projections, proving the business’s ability to repay the loan according to terms.
Use Your Existing Business Relationships
Big banks with which a business has no history are likely to be the toughest sell. Small-business owners seeking financing may find that leveraging their existing relationships with financial institutions will smooth the lending process. The bank where the business has its checking account, or the local credit union where the owner banks are ideal starting points.