Getting a small business loan is hardly ever straightforward. Lenders exercise extra caution while lending to small businesses, and will consider a variety of factors before approving your loan application. In this blog, we will be covering some of those important factors:
⦁ A comprehensive business plan:
A detailed plan is perhaps the first thing that a lender will ask of you. Amongst other things, your business plan should include the following:
⦁ Executive summary.
⦁ Business description.
⦁ Business goals.
⦁ Product/service descriptions.
⦁ Financial projections.
⦁ Marketing strategy.
⦁ Purpose of the loan:
Hardly any lender will be willing to extend money without knowing where it is going to be used. Even a vaguely described purpose will not be sufficient. For instance, if you want to borrow money for inventory, you need to specify the type of inventory, your supplier, storage plans, and the expected sales volume.
Remember that unless you clearly communicate your ‘game plan’ to the lender, you stand an almost negligible chance of obtaining the funding you are looking for.
⦁ Creditworthiness:
Creditworthiness is another crucial factor when it comes to successful loan applications. If your credit history is less-than-stellar, you should consider improving it before applying for a small business loan.
One of the most important and effective things you can do to boost your credit history is make timely payments. Not only will it help establish better relations with your suppliers resulting in favorable credit terms, but payment history has a weight of almost 40% in your FICO score.
Another practice that will improve your credit score is the bifurcation of your business and personal finances. Co-mingling these two sets of finances might make you appear disorganized to a potential lender.
Final Word:
We hope that implementing the above advice will significantly boost your chances of landing a small business loan. Remember that, once you do start getting offers, you should take the time to compare each offer and perform your due diligence before accepting one.
