Tips for Getting Loan Approval as a Small Business
It’s no secret that most traditional business loans have very conservative approval criteria, largely because traditional lending institutions are risk-averse by nature. The good news, though, is that there are a lot of alternatives to those loans, which are usually meant to help you with large asset purchases. Some options are for financing short-term working capital so you can manage your cash flow while taking advantage of new opportunities as they pop up. Others are specialized small business loans like those offered by the SBA, which are usually the go-to alternative for small companies that need facilities and equipment financing. They can also help you purchase a small business if you’re investing in an established company. So how do you get approved for SBA loans and other small business loan opportunities?
Research Program Criteria
Every small business loan program has different requirements, so you will want to prepare your application package to suit individual lenders. That means revising your basic business plan to align with their expectations and key criteria, not just repackaging your submission to another bank with a new cover application that follows a different template. It takes some time, and you need information to make those changes, so spend time looking over everything you can find from your prospective lenders. For SBA loans, this means reviewing the income limitations and restrictions on prepayment that come with the 7a and 504 loan programs.
Polish Your Business Credit Score
One of the biggest reasons why small businesses with healthy financials get rejected is their credit score. Sometimes it’s low because of a tumultuous period you’ve overcome, and you just need to establish the payment history that raises it to reflect your current financial health. Very often, though, the biggest obstacle is the lack of information in the credit report, because without a credit history you can’t hold an accurate score. That might mean establishing a business credit card or credit line to build up the payment history needed to establish the credit score you need for small business loans.
Include Detailed Projections in Your Business Plan
One of the most important considerations the lender makes is how likely you are to successfully grow your business with the resources provided by the loan. Another is the question of your ability to repay the loan if you do not make as much progress expanding your income as your projections predict. By working on making the projections both detailed and conservative, you can demonstrate your ability to make serious predictions without relying on a rosy forecast to succeed. Make sure to include a discussion of your cash reserve burn time and evidence of your ability to repay these small business loans too, for the best chance at approval.