There is a stigma attached to small business loans, and that’s applying for them is not worth the trouble. The application process becomes infinitely easier, however, when you know what business lenders devote most of their attention to while deciding whether or not to grant approval.
It all comes down to step-by-step preparation, much like anything remotely rewarding in life. By accomplishing these steps (and there aren’t that many), you will not only maximize your chance of approval but also learn whether your business is truly qualified to pay off debt at this specific time.
Here are five essential rules to follow when applying for a small business loan:
1. BE DETAILED:
When devising a business plan, you must be as specific as possible in regards to what you plan to do with the loan, how the loan will increase revenue, and how long it will most likely take you to pay it back. Even the most successful business would not be approved for a loan if the owner didn’t know exactly what the loan would pay for and how to handle the debt responsibly. A detailed knowledge of your business’s financial future will show that you take your business seriously and diminish the risk of approving your business loan.
Help your cause by citing research on the demand for your industry as well as statistics from previous years to prove that your business has been consistently improving to meet this increase in demand. These facts and figures must ultimately prove that your business is positioned to earn a certain amount of revenue that will cover a certain amount of expenses by a certain amount of time.
2. CHOOSE THE RIGHT LENDER:
Many business owners seek small business loans from banks because they’ve been working together for years. But unless you’re looking to borrow at least $3 million, choosing an alternative business lender is a much less stressful and risky option. The terms are not ideal and generic, there’s a ton of paperwork involved, and you’re forced to wait several months just to find out you’ve been rejected. You must also have a perfect credit score and be in business for at least two years.
None of these factors apply to alternative business lenders, so the next thing to consider is each lender’s track record when it comes to approving businesses with financial circumstances and goals similar to your own. Then, examine each lender’s programs and how flexible their terms are. You want to make sure you’re choosing a program that ensures minimal impact on cash flow and is tailored for the current state of your business, particularly cyclical jumps and dips in revenue.
3. BE TRUTHFUL:
The only claims you make about your business’s future or current state must be supported by evidence. If you sound overly-optimistic with no evidence to back you up, your case will only appear to be more risky and lenders will suspect that you aren’t a realistic, reliable business owner in the first place. Overestimating the health of your business will also lead you to look for business loans in the wrong places and ignore programs that are right for you. You must be 100% truthful when you are asked how much you want to borrow. Do not present a figure that is lower than what you actually need in hopes of being approved or state a higher figure so you can have a little extra money left over. Having to dig into your operational funding rather than a healthy revenue stream will jeopardize your ability to cover monthly expenses.
A major advantage of alternative business lenders is the honest relationship between the borrower and provider. For example, if you have a less-than-perfect credit score, be honest about how this score came to be, because if you can prove that you are a successful business owner, there is likely an understandable explanation behind it. The same rule applies to how quickly you need funding
4. GET YOUR DOCUMENTS IN ORDER:
This is arguably the most tedious aspect of applying for a small business loan. Banks typically require approximately ten different documents as well as a series of application forms but some alternative business lenders only ask for a few documents, and their application takes just a few minutes to fill out. Different programs might require different documents, but the documents you’ll need for almost every program are recent business bank statements and financial statements, which consists of a profit and loss statement, balance sheet, and cash flow statement. Certain programs might ask for credit card statements, personal tax returns, and a personal financial statement. The purpose of these documents is to prove that your business is currently earning a steady stream of revenue, isn’t crippling itself with regular expenses, and can afford to take on debt.
5. HAVE MONEY IN THE BANK
Some of the most reputable alternative business lenders base their decisions almost entirely on bank statements and financial statements. They want to see that you can pay off debt while covering rent, payroll, inventory, and other regular expenses. The only way to prove that this is the case is by showing that more money is coming in to your business than going out. You might think that any profitable business would have no problem proving sufficient cash flow but bank statements are often recorded right after businesses pay third-party suppliers, as opposed to right after the business gets paid or pays itself. Before applying for a business loan, it is crucial to make sure your bank statements show that your business does not have a tight monthly margin. The more money you have in the bank, the less risky the business loan is perceived to be, resulting in more affordable terms and interest rates.
United Capital Source has funded thousands of businesses that followed these steps. These business owners did not need to provide collateral, possess a flawless credit score, or present stacks of documents like article of incorporation, permits or licenses. They were judged solely by the performance of their businesses and could clearly show that they weren’t asking for funds to simply get by or survive a rough patch. So before you cover these five steps, ask yourself whether your business fulfills the most important qualification for a financing: Success!
United Capital Source offers funding programs specialized for all types of businesses. If your business is ready for funding call 855.933.8638 or visit the UCS website. Our one-page application takes a minute to fill out, and funding could reach your bank account in a matter of days.