Tips to Help Improve Your Small Business Loan Application
Applying for a small business loan can be difficult if you don’t know how to do it the right way. Whether you need a loan to buy real estate, equipment, or use it as working capital, the process is much the same. You will be required to do much more than just fill out forms. You will need to impress the banker with your loan application to get the loan.
your story is very important
The loan application process consists of four major phases, i.e., purpose analysis, repayment source analysis, loan management, and loan structure. These four phases of the loan process align directly with the five ‘C’s of your credit, namely borrower character, application condition, repayment ability, borrower collateral, and principal. So, in a nutshell, it comes down to the real story behind what your business is all about. Lenders want to know everything in detail, as it will help them decide if this is the right investment or just a careless risk. This story will need to be effectively communicated through a well-written business plan that should answer all 5C-related questions.
Warranty and paperwork
The recent credit crunch has changed the credit landscape quite a bit. That being said, things have changed for small businesses too. Small businesses that managed to survive the recession simply by focusing on providing great products, controlling their expenses, and generating cash reserves are now looking to expand. Banks do not see this type of business as high risk, but they remain cautious. Today, more paperwork is required to prove the company’s ability to repay the loan. Also, more lenders require collateral than ever before. While you may not like risking your possessions to get a loan, it’s probably the best way to get one at a decent interest rate, plus it improves your chances of getting a loan. If you think risking your property is risky, the bank probably considers your business risky as well. That being said, if you don’t have a warranty, make sure the other 4 C’s are foolproof.
talk to your accountant
New businesses typically require funding to support them for 36 months. How much do you need? What is a realistic figure? If you’ve been putting off your applicant because it always seemed like something you couldn’t handle, then it’s time to call your CPA. Work with your CPA and develop a scenario and financial statements that then support your need for a loan.
strengthen your credit
Must have good credit! This is one of the 5 C’s of credit that we discussed earlier. There are many things you can do to improve your credit, but first you need to find out what your credit score is. If it requires improvements, you can draw up an action plan to improve it accordingly.