Applying for a small business loan is not something that should be done on a whim. If you want to get approved for a small business loan and make the process as smooth as possible you’ll want to plan ahead and properly prepare yourself. Approaching a lender unprepared is a common cause for denial. In this article I give you several tips on properly preparing yourself to apply for a small business loan. You should do these things before you apply for a small business loan. Doing these things before you apply for a small business loan will help you get approved the first time you apply!
Find a Legitimate Expert Who Can Assist You
According to Intuit’s Future of Small Business Report, if you know where to look and how to qualify you dreams of acquiring capital can become a reality. Your local neighborhood bank branch and/or credit union may not be able to assist someone in your unique situation. That’s why it’s good to know where to go beyond your local area. Funding your dream business can take time and that time can be reduced when you know where to look.
The internet can be a great place to connect with funding consultants (such as underwriters, loan brokers, etc.) who are either direct sources of funding or have long-term relationships with direct lenders. Finding a good funding consultant that is experienced and well-connected in the small business financing industry will enable you to identify the lenders that are most suitable for you.
The best funding consultants will be able to educate you on what you qualify for based on a number of factors including your personal credit history and your personal and/or business income, etc. Additionally, they will be able to help you identify the type of funding you will most likely qualify and what lenders you should approach.
This will save you a tremendous amount of time and increase your chance of getting your loan request approved on the first go-round.
Obtain All 3 of Your Credit Reports & Scores
Obtaining all 3 copies of your credit reports and scores when preparing to apply for a small business loan is important because you’ll want to be aware of your credit standing. Furthermore, if you decide to hire a funding consultant to assist you, they will most likely ask for copies of your credit reports. The best funding consultants will be able to determine your creditworthiness by reviewing and analyzing your credit history. Determining your creditworthiness will enable a funding consultant to figure out the type funding you will most likely qualify (i.e. lines of credit, microloans, SBA loans, etc) for and what lenders you should approach (USAA, CitiBank, Bank of America, Capital One, etc).
Another factor to keep in mind is that your personal credit can be a huge determining factor in whether or not a lender will approve your small business loan request, especially if your business is a startup. Properly managing your credit will enable you to qualify for funding much easier than those who have damaged credit. Proper credit management consists of paying your bills on time (whether loans or lines of credit), and being able to maintain your credit accounts over a long period of time (at least 5 years of timely payments is ideal).
Gather All Required Documentation
Lenders will want to see certain documentation when you submit your loan application. These documents often include:
- A business plan, with marketing plan and at least 3 years of financial projections
- The last 2 years of tax returns (business and/or personal).
- Your personal financial statement.
- Your personal and/or business bank statements
- Your accounts receivables
- Your purchase orders
- A list of your business and/or personal collateral
Depending on the lender, you may or may not have to submit the documentation outlined here. The right funding consultant will be able to tell you what documentation you’ll need to submit and help you submit it. Gathering the required documentation before approaching a lender will help speed up the decision process.
Those Who Prepare Get Approved
According to Intuit’s Future of Small Business Report, lenders are lending to qualified small business owners. If you are creditworthy, have a business plan, revenues, a consistent income, and/or collateral, you’ll find that your chances of getting approved for a small business loan increase tenfold. It pays to properly prepare yourself before applying for a small business loan.