One of the most difficult aspects of applying for a small business loan is the fact that every business lender has different requirements. Something that might be very important to one business lender could mean close to nothing to another. The key is to separate the universal requirements from the specifics. There are certain qualities that are viewed favorably by virtually all business lenders, whether it’s a commercial bank, online business lender, or an alternative business financing company like United Capital Source. Once you’ve nailed those down, you can move on to the more individualized qualities.
Any experienced business owner knows that the number one requirement for business loan approval is cash flow. Therefore, the first requirements you should worry about are those that tell the business lender that your cash flow is under control and poised for growth.
1. Proper Tracking Of Income And Expenses
This seems like common sense. What kind of business owner doesn’t keep tabs on income and expenses? Well, many more than you’d think, and for several reasons. Some entrepreneurs tend to get so distracted by what they want to do that they forget to focus on what has actually proven to work thus far. Others might be completely zeroed in on making as much money or servicing as many customers as possible. This mentality may sound like an effective way to stabilize or increase income, but you’ll probably just end up wasting time on the wrong tasks. Tracking income and expenses is especially crucial for seasonal businesses, or industries that are naturally prone to tumultuous income.
Let’s say you are in pursuit of a working capital loan to cover regular expenses during a slow season. Your business lender will want to know the precise times in which your slow season has started and ended in recent years. While you might not be able to control changes in demand or weather, there are most certainly things you can do to increase income within that time frame.
2. Your Expenses Aren’t Too High
Cutting expenses is one of the only things that is recommended to literally every single small business loan applicant. It’s safe to assume that you are over-paying for at least one regular expense. Small business owners don’t have the time to compare the prices of every option available before making a commitment. And that’s okay, up until you’re ready to grow. Before applying for a small business loan, look at the costs and return of every tool, software, program, consultant, etc. Business lenders will be pleased to see that nearly every investment you put into your business is producing a return that matches or exceeds the cost.
Numerous types of business loans, like a business line of credit or merchant cash advance, can be used to cover expenses during a rough patch. If this is how you plan on using your borrowed funds, make sure the cost of these expenses is appropriate in regards to short-term or long-term goals.
3. Multiple Specific Income Goals
It’s extremely difficult for a small business to consistently make a lot of money without a series of goals. In your business’s early stages, your goals were probably just revolved around staying alive, a.k.a. creating a profitable operation. But in order to achieve sustainable growth, you must set several goals in regards to everything you need to succeed. You need to know how many employees, products, and customers will allow you to make a certain amount of money per month based on your yearly goals.
Some business owners prefer to make their goals fairly basic, like earning six-figures per year. This is easy to break down because you can immediately determine that your monthly average income must be at least a little more than $8k.
4. Pricing For Profit
Pricing for profit is among the greatest challenges of any small business. Your prices must be competitive and reasonable but not too low. If your prices are too low, business lenders may get the impression that you are attracting customers who don’t view your products or services as truly valuable and are therefore less likely to become loyal customers. If dangerously low prices are the only way you are able to draw a profit, business lenders might be hesitant to work with you.
Remember, quality is supposed to be what separates small businesses from their larger competitors. Business lenders who specialize with smaller operations might not be as concerned about higher prices as you might think.
All four of the aforementioned items are essential for healthy cash flow. If you are lacking in any of them, take all the time you need to make the necessary changes before applying. This might take a while but it will make your repayment process infinitely easier. You can bet that a great deal of the many businesses that were unable to up pay off their debt on time neglected at least one item on this list. Don’t make the same mistake and prepare accordingly.