Sponsored by Credit Sesame:
In 2018, it is of absolute importance that you know what to expect before you approach a lender to apply for a business loan.
Aside from being prepared to answer and justify just how much you need to borrow and when you can pay it back, you’ll be required to provide a comprehensive and transparent history of your financial affairs. If this is your first time applying for a business loan, ensure that the type of credit you’re seeking is in line with your business needs. If you require immediate funds through a bank, or a larger loan through an alternative provider, it’s important to have confidence in knowing exactly what you need.
What you may consider as an excellent business model will be scrutinized by any responsible lender, so do your homework and make sure what you submit is well-researched and realistic. First-time applicants should be aware that your history of making repayments on personal loans will contribute to a decision, so it is always a good idea to learn how to build credit.
Those applying for small business loans can consult the Small Business Administration (SBA), who provides loan programs and assistance with startups and existing businesses alike. The SBA assists loan applicants for sums between $500 and $5.5 million by guaranteeing repayment, reducing the risk for SBA approved institutions. The SBA can, for a lender, be the difference between approving/extending credit and declining a loan for working capital or fixed assets purposes.
Regardless of your purposes or requirements for your loan, responsible lenders will request information from you and any business partners. Be prepared to have the following information when applying to a creditor:
- Personal financial history and personal financial documentation
- Business statements (balance sheets, income statements, cash flow statements, and shareholders’ equity statements)
- Profit and loss statements
- Business certificate/licenses
- History of applying for loans
- Tax returns
- Business leases
If unsure, it is also recommended that any applicant requests a list of required documentation from the lender before entering the application process.
A common reason for applicants being declined at the application stage for small business loans is their lack of understanding of their credit history. You can check your free credit score instantly, or apply to a credit reference agency for this information in writing. The chances are significantly against any applicant if they’re unable to justify any adverse credit. Understanding the information on your credit report can also prepare you for the likelihood of approval or rejection.
When applying for a small business loan, it’s important to remember that failing to prepare is preparing to fail. As the economy recovers, there is renewed optimism that approval rates on credit for fledgling or growing enterprises will improve also. The impetus is still on the applicant, however, to ensure that the loan and lender is the right match for their business needs.
Remember, it’s up to you to convince a lender that you are in a position which is worthy of credit approval and not up to a bank or alternative lender to prove you are not.