The old saying rings true: sometimes you have to spend money to make money. When it comes to small businesses and entrepreneurial endeavors, however, that working capital can be hard to find. The process is especially intimidating when you realize just how much banks have retreated from small business lending in the aftermath of the 2008 recession. In fact, traditional banks have denied around 80% of requested small business loans since the recession. Thankfully, although applying for small business funding is still daunting in a world ruled by traditional bank financing, it is possible to obtain the loan you need. Use these tips to help secure your small business loan:
Outline Your Business Plan
A thorough and well-organized business plan can do more than help you organize and grow your business. As you apply for a loan, including a clear business plan will give lenders an introduction to your industry, niche market, mission statement, and company goals. The document should also outline your goals for growth, including how additional funding would fuel that growth. By providing every aspect of your business intentions in detail, lenders can better evaluate your chances for success. A lending agency will be more likely to grant your full loan request if they feel your company is on track and will be able to repay the loan in full.
Determine Loan Amount and Use
In general, most lenders want to facilitate small business funding and growth. A lender is likely to say “no,” however, if they cannot clearly see how the amount and proposed use of the loan make sense for your business. Are you interested in short term loans and equipment loans, or do you need additional funding for working capital? Once you define the projected use, determine the amount you will need while factoring in repayment time and cumulative interest.
Next, organize and update your accounting records to ensure they include all aspects of your business’s financial health. Lending agencies will take a close look at your current finances and base their decision on both your current cash flow (to make payments) and your projected post-loan revenue (to pay off the loan entirely).
Review Your Credit Report
Despite the many different factors that lenders evaluate, your personal credit score is still a huge determiner in whether or not you will be declared eligible for a loan. Small business owners should examine their credit reports about twice a year for inaccuracies or mistakes, as these can quickly drive down your credit score. It is possible to correct errors by contacting your reporting agency, but be aware the correction process is long and complex. If you plan to apply for funding within the next year, examine your report now to ensure everything is correct.
Otherwise, you can self-evaluate your own eligibility if you keep track of your score and know it is accurate, whether low or high. A score of 700 or above is considered excellent, and most lenders will approve any scores above 620, giving you plenty of lending options. Scores between 520 and 620, or below 500, are often a caution sign for lenders in determining eligibility.
Still, many alternative funding firms understand how small business credit scores are easily affected by the combination of large operating costs and late-paying customers. Look for an agency that offers additional funding sources or uses criteria beyond credit worthiness to determine loan eligibility.
Avoid “One Size Fits All” Loans
Traditional approaches to financing often leave small businesses owners and entrepreneurs behind. Small business funding is unique because every company operates differently, with individual daily operations and financial plans. Because of this, traditional bank financing might not be the answer. Consider using an experienced funding firm, such as LVRG, where the mission is to build client partnerships in order to understand and assist small business owners with their unique financial needs.