CEO of National Business Capital, the leading fintech marketplace offering streamlined small business loans.
Both new and established businesses need ongoing access to capital. A small-business loan can give you access to the cash you need to keep operations afloat and fund new business ventures. But over 80% of small-business owners who apply for a loan via a bank get rejected. And there are more financing options than ever, so it’s hard to know what type of loan you should use or how to pick the lender that’s right for you.
So before you borrow, there are some steps you need to take first. Doing these things will not only improve your odds of receiving a small-business loan but will make it easier to evaluate the options you do receive.
Have A Clear Purpose For The Loan
Before you apply for a loan, you need to know exactly what the loan is for. For instance, is the financing for a short-term need, or are you looking to fund a long-term business expansion? Having a clear purpose will help you determine whether you need a short-term or long-term loan. It will also make it easier to explain to your lender what you plan to use the funds for.
In addition, you need to figure out exactly how much you need to borrow. This point may seem obvious, but many business owners try to borrow as much as possible, thinking more capital will solve their problems.
That’s not necessarily true, and asking for more money than you need increases your odds of getting rejected. You need to figure out exactly how much you want to borrow and articulate how those funds will add value to your business.
Know What Lenders Are Looking For
Before you apply for a loan, it helps to know what your lender is looking for. And one of the first things your lender will consider are your personal and business credit scores.
Poor credit will make it much harder for you to qualify for a small-business loan, whereas a personal credit score of at least 620-650 FICO will dramatically increase your odds of approval. But in addition, it helps to have a strong business credit score.
Business credit is an area many small-business owners overlook. A 2015 survey of 250 small-business owners found that 45% didn’t know they had a business credit score. And 82% didn’t know how to interpret it.
You can check your business credit score for free using Dun & Bradstreet, Experian or Equifax. A score of 80 to 100 is considered a good score and will help you qualify for lower rates.
In addition to having good credit, lenders want to see signs that your company is growing. And your lender will want to see that your business has sufficient cash flow and assets that can be used as collateral.
Look For A Lender That Knows Your Industry
Many lenders specialize in working with companies in specific industries, and some have industries they won’t work with at all. You want to look for a lender that will be able to help you, so asking for this information up front will keep you from wasting your time.
In addition, ask about any pre-qualification requirements that need to be met before you apply for a loan. For instance, the Small Business Administration requires a lot of additional paperwork, so these loans can be more time-consuming to apply for. This may still be the best option for you, but you want to know these things from the start.
Compare Offers From Multiple Lenders
When you’re applying for a small-business loan, you should always compare offers from multiple lenders. Comparing offers will help you find the best rates and terms on your loan.
Banks and credit unions are a good option, thanks to low rates and flexible repayment terms. But applying with multiple banks can be time-consuming, and these lenders may take longer to approve your loan. You may also have to fill out additional paperwork, and some may require in-person meetings.
Another option is to apply for a loan through a lending marketplace. These applications take place entirely online, and you’ll apply once and receive offers from multiple lenders. This streamlined process can save you a lot of time, but your rates may be higher than what you’d receive with a bank.
No matter what type of lender you choose, the important thing is to read the fine print before agreeing to anything. If something in the lending agreement doesn’t make sense to you, ask your lender to explain it to you.
The Bottom Line
Before you apply for a small-business loan, it’s critical to spend time preparing first. Know exactly how much you need to borrow and what you plan to use the funds for.
Get your financial documents in order, and look for a lender that’s the right fit for your business and industry. Taking these extra steps will increase your odds of approval and help you get the most value out of the loan.
National Business Capital is the top FinTech marketplace offering small business loans and financing. Harnessing the power of leading technology and smart people, we’ve streamlined the application process to secure over $1 Billion in financing for business owners nationwide.
Our Business Financing Experts work within our 75+ Lender platform to match you with the right option. Easily access the best low-interest SBA loans, short and long-term loans, business lines of credit and equipment financing all in one place.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!