With many alternative lenders on the market and the government encouraging big banks to start lending more again, you’d think it would be easier to get business loans these days. Why is it, then, that more than 50% of businesses applying for a loan for the first time have their application rejected?
Without adequate financing in place, many small – and especially new – businesses – struggle to make it through their first year, so it’s vital that they have ready access to the funds that will keep them afloat. So, how can you make sure your loan application has the best chance of success?
To get the stamp of approval first time around, follow these 5 tips:
1. Prepare a strong business plan for business loans. This is the part of your loan application that will be checked most thoroughly, so it’s important that your figures are accurate and you’ve included current financial records as well as detailed forecasts for business growth. You should also include tax records for the last few years.
2.Get professional advice. Even if you’ve got a firm handle on the business, it’s worth having an accountant or professional adviser take a look at your financials before you put in a loan application.
There will always be important factors you’ve overlooked, and a professional accountant will likely have years of experience advising on similar cases to yours.
3. Double-check details of your personal history. If you’re starting a new company, your personal credit score and business history will probably be examined closely by any potential lender. Contact one of the big credit reference agencies to obtain a copy of your personal report at least six months prior to making an application.
If there are mistakes in the report that could negatively impact on your application, contact the relevant parties to ensure they’re corrected before proceeding.
4. Keep it real. Don’t be tempted to ask for less than you need to make the business a success just because you think you’re more likely to get approved. Your application won’t be evaluated on how much or how little you want to borrow but on how viable your business is and how realistic your plan for repaying the loan.
If you’ve provided enough evidence that you can meet the monthly payments, your application has a strong chance of success.
5.Consider all the options. Given the number of different lenders on the market today, it’s surprising that so many business owners don’t consider talking to anyone but their local bank manager when they’re looking for extra funds.
While the big banks may provide better long-term rates, their strict loan requirements involve a lot of extra paperwork and often rule out new start-ups, as well as those without sufficient collateral to guarantee the loan.
Doing your homework is the key to a successful first-time business loan application. This means not just getting your paperwork in order but exploring the current lender market to find a loan offer that best suits your business.
Author: Melanie is a content writer offering business finance tips and advice to small businesses, including tips on managing cash flow and how to secure finance. For more see Capiota