Securing a business loan is tricky and difficult, oftentimes ending in disappointment… But here are some pointers for you to increase your chances of getting the SME loan you need! You aren’t going to walk into your local bank, fill out a loan application and get approved on the spot. So, start yours right away. As in today.
In a perfect world, every entrepreneur would have the resources necessary to transform a killer business idea into a smashing success. However, as you know by now, that’s not how it works.
In fact, having a great idea is only part of the equation. At some point, most entrepreneurs will need a small business loan. Unfortunately, getting approved for a loan can be challenging if you don’t have all of your proverbial ducks in a row.
If you’re a businessman, you’ll understand that a significant portion of your capacity to operate requires substantial finances. You’ll definitely need financing at some point; to get your business off the ground, for plans to expand, or perhaps to acquire new equipment.
There are several ways to raise capital for your business, from small business loans to taking cash out of your own pocket, or even borrowing from family and friends. For most business owners, securing a business loan through a bank is the ideal option. However, qualifying for a business loan from a bank isn’t easy with approximately 80% of small business loan applications getting rejected.
As with any plan or strategy, there are nuances to take note of to skew the odds in your favour. So here are a few things that can help improve your chances of getting a business loan.
When it comes to getting a small business loan, you have to put yourself in the shoes of the bank or financial institution that you’re interacting with. If you were in their role, would you feel confident loaning money based on the set of circumstances and factors an applicant provided, and the interview process?
Once you flip the script and look at things from their perspective, you should be able to see your situation in a less biased light. That being said, here are 7 tips for getting approved.
1. Start the process ASAP
You aren’t going to walk into your local bank, fill out an application, and get approved for a loan on the spot. The approval process can take weeks, if not months to unfold. That’s why it’s best to start the process as soon as you can. Sp don’t wait until you need the money or you may end up with your back against the wall.
2. Boost your personal credit score
Fundamentally, you must know your personal credit score if you want to even be considered for a business loan!
One such resource you can tap on is the Credit Bureau, reliable for checking your credit score and learning how to improve it.
CreditSoup’s CEO, Darin Namken, explains that lenders want to feel confident that the borrowers can repay their debts. He says “the best way to gauge that is by looking at how often [borrowers] pay [their] bills on time”, adding that the “payment history is easily the most influential part of [borrowers’] credit score” and missing even just one payment can “knock an otherwise stellar score down quite a few pegs.”
3. Show Off A Strong Marketing Plan
As the saying goes “if you fail to plan, you plan to fail”.
This very much applies to business loans. Lenders need to know that you have a plan for the sustainability and growth of your business; that you know how to manage the different aspects of your business, such as marketing efforts, as business increases.
When speaking with a lender, be very clear about how the money will be used. Giving some vague or general response about growing your business isn’t going to work. The lender will want to know exactly how the money will be used in order to determine the feasibility of your application.
Utilising marketing automation and CRM platforms like Salesforce can help take care of marketing efforts so you can concentrate on running your business. Such platforms are designed specifically with the small business owners in mind. Using these platforms also provides data analytics, giving you valuable information on your clients, which gives the lender confidence that you understand, and can manage your clients.
Every business is different, but a few of the smartest ways to use a loan include an inventory purchase, business expansion, administrative expenses and capital investments. You may also choose to refinance or pay down debts, but lenders won’t always look at these uses with high regard.
4. Always Be Prepared
Banks and financial institutions are impressed with borrowers who display deep knowledge and experience of their respective industries, such as knowing how to avoid potential pitfalls or having realistic sales projections.
Technological software such as Salesforce or Upserve, help to anticipate sales, manage operations, and mitigate risks. Such platforms provide real-time insights that enable businesses to respond and maximize margins, for example, by matching manpower capacity to a period’s anticipated work requirements.
Organization plays a key role in whether or not you’ll be approved for a small business loan. If the bank asks for a specific piece of information, you need to be capable of providing it in a timely manner. A lack of organization shows that you’re unprepared and risky.
The best thing you can do is over-prepare ahead of time. By having ready every possible piece of information or documentation that your lender could want, you can wow him or her with your efficiency, and take control of the process.
5. Get advice from experts
Asking a bank for $100,000 to grow your business is one thing. But totally different is setting up a meeting and explaining that you’ve met with your financial advisor, accountant and board of directors, who have determined that you need $103,000 to expand your production facility and lower your cost of goods sold.
As mentioned, lenders want to see a specific plan. They also want to know that you aren’t acting alone. They like to see that you’re communicating with experts in your field and fully understand the situation.
6. Improve your odds
Getting approved for a small business loan is no easy feat. The burden of proof is on you to convince the lender that you’re worth the risk associated with lending money. Put yourself in these people’s shoes and think about how you look. Be sure to address your shortcomings and highlight the positives to improve your odds of being approved.
7. Tell Your Unique Story
Who doesn’t love listening to a story? It is, after all, the most powerful way to put ideas into the world. So, you must sell your story; the vision of your business.
In your story, you are able to showcase passion, substantiated by a history of successes and a series of numbers. The lender is more likely to empathize with you and share your passion to succeed, thereby providing you the finances you need.
So when your time comes, remember that a good credit score will open the door, a marketing plan and a comprehensive strategy will leave an impression, and an engaging story will seal the deal.
Some parts of this article first appeared on entrepreneur.com