How To Get a Small Business Loan: 6 Tips From an Underwriter
Getting a small business loan online is anything but difficult if you go about it the right way. Unlike stodgy banks with their strict credit score and financial history requirements, online lenders have made applying for loans such a straightforward and streamlined manner that it’s hard to imagine why anyone would want to apply anywhere else.
But just because applying for a loan is considerably easier nowadays doesn’t mean getting one is THAT easy. No matter how qualified your business is, you must always put your best foot forward.
Trust me. I’ve been in the FinTech industry for 10 years, and four of them have been evaluating and approving small business financing applications. From my extensive experience, these are the six top tips on how to get a small business loan.
1. Understand your funding needs
These are the three basic questions you need answer before applying for a business loan:
Why do you need the money?
How much do you need?
What debt payments can you afford?
Understanding your funding needs can spell the difference between a business loan that would help your business grow, and one that would weigh you down with unmanageable debt.
Take two restaurant owners with different business needs. The first needs to replace an oven that broke down, while the second is looking to expand to a new location.
A new oven is a major expense. But the first restaurant owner makes a smart move: he takes up a credit line with repayments that are well within his profit margins.
On the other hand, the second restaurant owner applies for a credit line with a high credit limit for a plan that is clearly over ambitious. To make payments on the credit line, the second restaurant owner’s new location would have to be up-and-running within two months, a very aggressive timeline.
It would also need to generate four times as much profit as their current location is making.
Most lenders will try to help you figure out if your plan makes sense. But you should have a clear sense of your business needs and finances even before applying for financing.
2. Know your legal standing
This is a fairly quick and affordable step to take that could boost your chances of being approved for financing. That’s because having a clear idea of your legal standing as a business tells a would-be lender that you have a solid grasp of your business affairs.
Here’s what you need to do: Check with the Secretary of State’s office in your area whether there are business liens or tax liens on you or your business. In most cases, you can do this online.
If there are liens that are not valid, take the necessary steps to have them removed.
In my career, I’ve encountered clients who were able to increase their credit lines by as much as $50,000 just by removing a couple of old irrelevant liens from their business.
If your business is incorporated, this would also be a good opportunity to check if you are properly registered and in good standing with the Secretary of State. If your business isn’t incorporated, you should consider doing so before applying for financing.
Remember, lenders often view incorporated businesses as more stable and creditworthy.
3. Google yourself
That’s right, googling yourself and your business is important.
That’s what many lenders will do once they receive your application to get more information about you and your business.
They’ll likely check your LinkedIn and other social media profiles. They’ll probably even read what customers say about your business on such sites as Yelp. Negative customer reviews could reflect poorly on your business. You could take steps to mitigate the impact of these reviews by responding to the comments.
It’s also smart to be aware of these comments and be prepared to explain the negative reviews in case they come up in the application process.
4. Check your credit
Most lenders will check your personal credit report in evaluating your loan application.
While it is often overlooked, your business credit report is also important. It can have big impact on your application, especially if your personal credit report isn’t stellar.
Checking your credit also gives you the opportunity to identify issues that you may be able to resolve easily, such as settling old debts or correcting false information.
5. Get your documents ready
One thing is certain when applying for business financing: you will be asked to provide documents. Sometimes lots of them.
This is also true with online business lenders. In fact, you may even be asked to provide additional documents as your application is being processed.
Making sure you have important documents ready and even in digital form would speed up the application process and prevent delays.
That was the experience of a consulting company in search of financing. The firm had just gone through a significant downturn which could have led to the rejection of the company’s application. But the consulting company ended up being funded on the same day. The reason: the business owner had all the necessary documentation that painted a clear picture of the business. The documents showed that the downturn was the result of normal seasonality and that the business was about to bounce back.
Here’s a list of documents worth keeping handy when applying for a loan:
- Recent bank statements (last 3 to 12 months)
- Recent tax filings (1 to 3 years)
- Incorporation papers
- Updated balance sheet
- Profit and loss report
6. Find the right lending partner
Applying for a business loan also involves finding the right lender. This is particularly important now that you have so many online financing options.
The right lender and credit line can build a business up, help them grow and achieve tremendous success. The wrong one could cripple a business with poor financing decisions.
What’s an ideal lending partner?
First off, the lender must have the type of financing you need. There are many choices and picking a lender depends on what your business needs. The ideal lender also must be transparent about their products work and their financing terms, including interest rates and fees. Sbaloanprogram.com is the right lending partner for your business’ financing needs. With over 135,000,000.00 in closed SBA Small Loan Advantage loans in 2018, we are the industry leader in our field and our lending partner, Independence bank of RI, is one of the top 10 SBA lenders for 2018.
BlueVine Business Blog Writer Zoe Weisner contributed to this article which was first published on Jan. 26, 2017.