If you’re an entrepreneur in need of a small business loan for your growing company, it’s important to be prepared before approaching lenders. The only way you can be prepared is if you know what lenders expect of you. There are 5 things lenders look for when reviewing most small business loan requests. If you keep these in mind and act on them, you will have a better chance at getting your small business loan request approved the first time you apply.
Your Character & Personality – Some lenders will consider your character and personality when reviewing your small business loan request. When you sit down to meet with a lender, it’s important to show them the positive aspects of your character and personality. Smile and be enthusiastic. Show them you have a sincere passion for what you are doing. Obviously not all lenders will care how great of a personality you have but it’s good to show them you have a positive attitude. They may be able to convince their lending board that you are an ideal candidate for a loan because of your character and personality.
Your Personal Credit Score – Your personal credit score is absolutely critical to lenders when reviewing your small business loan request. Even if you have a great personality, if your creditworthiness doesn’t measure up, you will get denied. Lenders prefer lending to borrowers who are dedicated to meeting their financial obligations. If you have less than perfect credit but a great personality, you’ll have to start working on rebuilding your credit history to prove to lenders that you actually care about meeting all of your financial obligations on time.
Your Ability to Repay – You will need to show a lender you have the ability to repay any small business loan you borrow from them. Lenders don’t want to lend to anyone who is unemployed or doesn’t have a consistent and reliable income. Even though you are starting a business, it will be best to keep your day job for as long as possible. Being able to show a lender that you have been employed for at least 6 months is ideal.
Your Ability to Invest Your Own Funds – If you truly believe in your business, you will have some of your own funds to invest. Depending on the amount of the loan request, lenders may require you to invest a percentage of what you are asking for. For example, if you are requesting a $50,000 small business loan, a lender may require you to invest 10% of that out of your own pocket. Be ready to show proof to a lender that you have your own capital to invest.
Your Access to Collateral – Most traditional lenders will require you to provide them with collateral (unless you are applying for unsecured funding, such as an unsecured business line of credit). Lenders may ask for real estate or sometimes business equipment like machinery. Alternative lenders may require other forms of collateral such as your future receivables.
Now that you understand what lenders are looking for you can determine how you and your business measure up. Obviously knowing what they are looking for and expect of you is just the first step. The next step is to act on it. If you act on it you may increase your chances of being approved for a small business loan tenfold.