Need to apply for a small business loan? We’ll show you some of the ways you can prepare to increase the likelihood of approval.
Determine your use of proceeds
Before applying for a business loan, start by narrowing down how you’ll use the proceeds. Will you use for working capital, hiring more employees, purchasing equipment, or expanding into a new location? Having a solid business plan that includes how you’ll use the funds will help you find the lender who can provide the best financing options.
Build your credit score
Most lenders will consider credit when evaluating potential borrowers. Strong applicants typically have fairly high personal and business credit scores, which demonstrates their ability to pay back the loan amount. With higher credit scores, you’ll also have access to more funding options with lower rates and longer terms. Your credit report will usually be pulled from one or more of the three major credit bureaus: Equifax, Experian, and TransUnion. You can find your information there as well as through your credit card issuer.
For tips on establishing and building business credit, check out our SmartBiz Small Business Blog! In addition, learn about where you stand when it comes to being Loan Ready by signing up for SmartBiz Advisor. This online, educational tool will help you understand how banks evaluate your business and deliver personalized recommendations even before you apply. We’ll show you how you can strengthen your lending profile and increase the likelihood of approval.
Get to know lender qualifications and requirements
Once you have a few loan options in mind, you can start looking for a lender. Each will have different requirements and eligibility factors to demonstrate that you and your business are financially healthy.
Some lenders may require more information than others, depending on the type of loan they’re offering. For example, banks who partner with the SBA will present you with additional eligibility questions from the government agency since they guarantee the SBA loans.
Making sure you meet lenders’ minimum qualifications will save the effort it takes to progress through an application only to be met with a “no” later down the line.
Choose a product that works for you
There’s a wide variety of lending options out there. Some are limited to specific purposes and terms, while others are more flexible when it comes to the life of the loan and the ways they can be applied to business operations. From SBA loans to invoice factoring to merchant cash advances, we’ve outlined the most popular loan products you can choose from on our blog. With a clear picture of your intended use of proceeds and eligibility, you can select the best fit for your small business. Then, look into the lenders who offer your preferred business financing and use metrics like APR to weigh your options so you can make the most informed choice.
Gather necessary documents
Lenders typically require a variety of financial documents before providing business financing. At SmartBiz, some of the most commonly collected paperwork includes personal and business tax returns, personal financial statements, and income statements, among others. Having recent documentation will help you move through your application quickly. If you choose to move forward with a low-cost SBA loan, check out the 5 application steps on our blog and learn more about the SmartBiz SBA loan approval process here.
To see what banks look for when evaluating a business like yours for an SBA loan, check out SmartBiz Advisor today. This free, educational tool immediately generates your unique “Loan Ready Score” based on the key criteria banks consider. Get started here.