Updated: Apr 20, 2022
6 Tips for Getting a Small Business Loan
Getting a small business loan used to be relatively easy, but this is no longer the case. With the current weak state of the economy, loans of all types are now more challenging to acquire.
If you want one of these coveted loans, you need to be well informed and then use that information wisely to improve your odds. If you're willing to do things in the most advantageous way, your odds of success will go up dramatically.
Use these 6 tips to your best advantage:
1. Keep your day job. Lenders today want to see a secondary source of income, ideally one that is capable of repaying the loan. If your only source of income is going to be the business for which you are seeking the loan, it's going to be a tough sell right now. Keep your job, at least until after you've gotten the loan.
2. Have some collateral. Be prepared to have liens placed against any significant assets you may have. It’s more difficult to get a loan if you have few assets.
· If you don’t have a lot of assets, it simply means the other parts of the process will have a greater significance. If you have a good idea and the expertise to make it work, you'll find someone willing to help.
3. Maintain excellent records. The single-page application is rarely found in today's economy. You'll need a lot of qualifying information just to apply. You may as well have hard copies of everything ready to go. This includes income tax information, pay stubs from your current job, verification of assets, and more.
4. Have a business plan ready. Having a solid business plan helps to put the lender's mind at ease. Include all the information related to how the business will operate, the people involved in the running of the business, their experience, and reasonable income projections. Sign up for our Free Course, How to create a business plan!
· Remember lenders see business plans every day; if your projections are unreasonable, they’ll know it, and your credibility will be shot.
5. Appear respectable. Your prospective lender will certainly crunch a lot of numbers during the decision-making process. However, there is also subjective evaluation going on as well. Your lender will be questioning whether or not they believe you're the type of person likely to repay your loan.
· They will also try to figure out if you're the type of person capable of turning a loan into a stream of income. Your education, experience, and references will all be considered.
6. Ensure your credit is solid. Your credit history is a very important part of the loan application process. Be aware of everything in your credit report, both the good and the bad. If there are any mistakes to your detriment, have them corrected before filling out the loan application. In addition, do everything you can to repair negative information, too.
As with many things, the devil is in the details. Following the above tips is not a guarantee that your application will be approved, but it will greatly increase your odds of success. Take the time to put the odds in your favor. Getting a small business loan might not be easy, but it can be done!