When it comes to applying for a business loan, older businesses that are doing well in the market definitely have an advantage. Of course, for new and start-up businesses, convincing a lender to provide the financing you need can be a more challenging task.
Nonetheless, it does not mean that you do not have a chance of getting the business funding you seek. Today, let’s talk about a few things you need to know before applying for a business loan to increase your chance of approval.
Know the Prerequisites of the Business Loan
Generally, lenders will require the submission of your financial records for the past two years or if you own a new business, you will also have to submit information from the point you started business. You must also prepare proof that you are running a legitimate company by providing copies of your permits and licenses.
For new and start-up businesses, being able to present a sound business plan is crucial. Needless to say, you want to show your lender that your business has a lot of potential and will succeed. Your business plan must present a clear explanation of the type of business you are managing, your experience in that industry, the number of employees you have, your marketing projections, cash flow projections and other essential details about your business.
For established businesses, it’s important to make sure that your accounting records are accurate as the tiniest discrepancy in the details maybe enough to make the lender nervous, and thus lead to a loan denial. If you have a previously acquired business line of credit, your payment history will be evaluated. Yes, your business credit history will be a major factor when your application is reviewed.
But what if you do not have corporate credit history? If you have just started-up the business, your personal credit history as the owner of the company will be taken into account. A lender may approve or decline your business loan based on how you manage your personal accounts such as loans, mortgage, and credit card debts.
A business owner must order a copy of his/her personal credit report prior to submitting a business loan application. Thus, in case the report contains errors or inaccuracies, it can be corrected right away before a potential lender pulls out your personal credit report. The same advice is also applicable to owners of established businesses. Even if you already have corporate credit, it is wise to make sure your personal credit history is in good standing as well.
Preparation Is Vital
Yes, preparation is very important before attempting to apply for a business loan. According to financial experts, business owners must avoid major changes in the structure of their business or starting a big project a few months before applying for a loan. An unfinished project can make them think you have run thru your original budget and are seeking funds to complete it. It would make a potential lender evaluate the project from the ground up to see if there is still a way for you to profit from that venture, or if you are too heavily leveraged to make the project feasible. Keep in mind that lenders need to see that your company is stable and worthy of financing.
When searching for potential lenders, do not just concentrate on bigger banks. Be sure to check out your local banks as well since they might be more inclined to finance a new business. Do not submit different applications to multiple lending companies at once since such a move may send a negative impression to each lender. Keep in mind that each time you submit a business loan application, an inquiry will be made, and all inquiries will be reflected in your report.
About the Author:
Emma Collins is a credit consultant and advocate for entrepreneurs and small business owners. She has been writing articles online for about 7 years now. Corporation Support.com aims to provide you assistance in obtaining corporate credit (business credit lines) for those who want to run or expand their business.