It’s a common phenomenon to reach out to lenders when tough times arise. Same is the case with small businesses — small business owners turn to lenders to grow their brand or when they face challenges like cash flow, installing modern technology etc.
However, sadly, small businesses are often denied the loan. Not because lenders are too demanding in their requirements, but perhaps because they lack the skills to win a business financing of their liking. Rest assured, you can qualify for a business mortgage without undertaking too many hardships if you take the following measures:
Map out a Solid Plan to use Funds
This should be on top of your priority list. The key is to gain confidence of the lender and the best way to do that is to show your business skills so that they consider it less risky to accept the loan. Unless they have faith in your ability and vision, lenders are not easy to convince.
Lenders are most likely to know about your niche since they go through hundreds of business plans. Therefore, your plan or roadmap should be based on reality. Give them a thorough and pragmatic overview of how you will utilize the borrowed money. Don’t try to cheat on them by indulging in malpractices, such as figure fudging. This could be your first and last mistake and you will be immediately out of the race of the potential borrowers.
Maintain a Positive Credit History
A positive credit history increases the chances of loan approval. For many lenders, it is often the first thing they check. The lenders check your credit report thoroughly and your loan is based on that report.
A credit score of 700 is considered as very good. Anything between 600 to 700 is termed as an average score and below 600 falls in the lowest category.
Sometimes, business loans are rejected just because of the errors occurred in the credit report by the authorities. To avoid this problem, you must go through your credit report and rectify the errors if any. Some of the small businesses anticipate the need for financing a few months early and in the meantime they start reshaping their bad credit history.
Naturally, it takes time to create a credit history and if it’s too early for a business to develop its own credit history, then personal credit history swings into action.
Showcase Cashflow to Ensure Monthly Payments
In order to ensure monthly (weekly or daily) payments, a lender would also like to know about the current state of your business — whether or not you can manage to pay the installments on a regular basis. Make sure that your debt load is in terms with your cashflow. If your business is already under heavy debt then a lender might be skeptic to finance you.
Put Something as Collateral
Business is always about ups and downs. Even if you are going through the most successful phase of your business life, you never really know what awaits you. As it stands with businesses, the situation gets out of hand too soon. A smart lender always prepares for the worst.
Majority of the lenders, regardless of your current business growth, would ask you to put something as collateral beause three Ds have ruined many lending firms – disaster, death and disability. On top of that, some lenders will even condition you for the first lien. Meaning, if any business failure occurs, your asset will pay first to the lender after it is sold off.
There is nothing wrong to stake an asset if you are so confident that your business plan will work out.
Prepare well Before Meeting the Lender
This is probably the most neglected aspect of the whole process. A lender will never see you as a potential borrower if you lag behind in your paperwork — he may outrightly disregard you. How can you discuss different lending option in the absence of the most essential documents like revenue records, tax statements, and so on?
You must spare some time for the preparation and give everything to ensure the lender that he is giving money to a responsible person. What’s more, a lender might give you the benefit of doubt on a couple of things if you are on top of your preparation. That’s the power of homework in a nutshell.
Be Accurate while Filling the Loan Application
Filling out loan an application inaccurately is a big no. There is no dearth of small businesses who have been denied loans just because of their typos or the errors as small as missing out typing word “limited”.
That’s a perfect example of how a minor mistake can washout all your hard work in the blink of an eye. Some lenders might even interpret your typos as an act of dishonesty, so be cautious while writing all the information. Better still if you take help from a professional.
Know Your Loan Options
The reason why many small businesses don’t receive loans is that they don’t take keep their options opened. They reach out to the established lenders and once they refuse the loan application, most people give up. It is not necessary that the first lender you meet offers you the loan right away. By all means, search around for lenders.
It’s okay if you meet a few rejections down the road. Consider it part of the process and carry on your quest. The lending industry is very diverse. You are most likely to stumble upon the kind of lender you are looking for.
Contrary to popular belief, it is not as hard for small businesses to win business financing. A borrower needs to understand that before qualifying for a loan, he has to win the confidence of the lender.