It’s easy to assume that lenders won’t consider your personal financial situation when you’re trying to obtain a loan for your business. After all, your personal financial situation might have no bearing on your ability to manage money in your professional life.
However, lenders want a complete picture before they trust you with their money. Sometimes, your personal financial habits can say a great deal about your money management skills, potentially impacting your approval odds. If you want to improve your chances of a successful lending outcome, you might like to take some of the following steps:
Step 1: Repair Your Personal Credit
You might start exploring the best tradeline companies when you realize that repairing your personal credit can be crucial for receiving business loan approval. The lower your credit score, the higher your chances of having your loan request denied might be.
Purchasing tradelines can be an excellent option when repairing your credit score, as they allow you to become an authorized user on an existing credit account. When the credit account you choose is long-standing with excellent history, there’s potential for your own credit score to benefit. You can also take other actions on your journey to repairing your personal credit, such as:
- Paying your bills on time
- Not missing loan or credit card payments
- Catching up on past-due accounts
- Paying down your revolving credit accounts
- Disputing any errors on your credit report
- Adding on-time rent and utility payments to your credit score
- Asking for higher credit limits to reduce your credit utilization rate
- Adding to your credit mix with a new type of credit
While it can often take a few months to notice significant changes in your personal credit, it might be worth the wait if you can enjoy fast and easy business loan approval with more competitive interest rates.
Step 2: Create a Detailed Business Plan
Business loan providers won’t approve a loan just because your business has requested it. Generally, they want to know what your business will use it for, your ability to pay the loan back, and what your business does so they can better understand where you will spend the money.
You can include such information in a detailed business plan, which your lender can use to determine your eligibility for the money you’re requesting. While creating a detailed business plan can be time-intensive, it can also be a valuable set of documents to have. Not only might it improve your chances of obtaining funding, but it can also function as your roadmap to business success.
Fortunately, creating a business plan can be straightforward when you know what to include in it. You can download a template from the U.S. Small Business Administration website to help you get started. At a minimum, a traditional business plan should include the following information:
- Executive summary
- Company description
- Market analysis
- Organization and management structure
- Product and service lines
- Marketing and sales strategies
- Funding request requirements
- Financial projections
- Appendix with supporting documents
Step 3: Research Lenders
While you might have a lender in mind when you begin exploring business loan options, that doesn’t mean you shouldn’t research all available lenders. The more financial institutions you explore, the better your chances might be of finding one that offers what you need.
Read reviews, compare interest rates, and gauge the reputations of multiple lenders. You might even talk to friends, family members, and business acquaintances who have acquired business loans in the past to see if they have used a lender they recommend.
Step 4: Request a Quote
After narrowing down your list of potential lenders, apply for a loan with one that meets your needs as closely as possible. While it can be tempting to apply with several lenders to improve your chances of success, this action is one of the most common small business mistakes.
When you apply for a business loan, the lender starts a hard inquiry into your credit report. Each check can impact your credit score, meaning there’s potential for your credit score to drop by dozens of points before you’ve even received approval from any particular lender.
Put all your effort into creating a standout loan application for your preferred lender with all the information they need to make an informed decision, such as your business plan. If they fail to provide you with the loan terms you need, you can then proceed with applying with a second lender.
Step 5: Explore Alternative Lenders
If you’ve made poor financial decisions in the past that have affected your personal or business credit, there’s a chance your credit score will be below the threshold of what traditional banks will accept. As a general rule, banks and credit unions prefer credit scores of 680 or higher. If your credit score is 740 or above, you might also be eligible for the most desirable lending terms.
If you aren’t eligible for a bank or credit union loan, even after improving your personal or business credit score with tradelines and other actions, you have other options. You might qualify for an SBA term loan from an SBA lender with a mid-600 credit score or an alternative lender loan with a score in the mid-500s. However, it’s worth knowing that the lower the score requirement, the higher the borrowing costs can sometimes be.
Business loans can be necessary for taking your business to new heights, but funding is never guaranteed. Fortunately, you might be able to improve your chances of obtaining the finance you need by taking these five steps above.
