Rejection of business loan applications can dent your aspirations. However, you won’t have to go through that if you follow the below-mentioned tips. Here’s a quick glimpse of some of them.
1. Tidy Up Your Personal Credit
If you’re starting your business for the first time, you may not have any business credit to fall back on. In such cases, lending institutions typically resort to evaluating the personal credit of the applicant.
Individuals who have a lot of free personal credit are more likely to get their business loan approved than those who’ve used up a large portion of their credit limit. So, if you’re someone who has utilised more than 50% to 60% of your total personal credit, then it may be a good idea to free some of that up before applying for a small business loan.
2. Reduce Your Debt-to-Income Ratio
This is one of the most important tips for getting a small business loan that you should absolutely follow. The debt-to-income ratio is a financial metric that compares your liabilities with your income. The lower the debt-to-income ratio, the better since it basically indicates that your income is sufficient to cover all your existing debts. Lenders usually prefer individuals with a debt-to-income ratio of 1 or less.
If you find that your debt-to-income ratio is on the higher side, it may be a good idea to try and bring it down before you apply for a business loan. This can help increase your chances of getting it approved.
3. Create a Rock-Solid Business Plan
Lending institutions typically require you to submit a business plan as part of the business loan application process. This will help them evaluate the individual applying for the loan in a much better manner.
Therefore, before making an application, get a solid business plan ready. The more detailed the plan, the better. The plan should ideally focus on how you’re planning to use the funds once they’ve been approved. Lenders typically tend to trust individuals with a solid business plan more than ones who don’t.
4. Keep Your Daily Bank Balance As High As Possible
Your bank statement is one of the key documents that you would have to submit to the lender when applying for a business loan. And so, ensuring that your daily bank balance is consistently high gives a good impression to lending institutions. This can work in your favour and can even lead to your business loan application getting approved.
5. Boost Business As Much As Possible Prior to Applying
If you’re already running a business, then this is one of the many tips for getting a small business loan that you should follow. Lenders tend to be more lenient towards businesses that are already generating revenue.
Therefore, by boosting your business revenue as much as possible through different ways can help you get the loan approved. Starting a new marketing campaign to bring more visibility to your business is a good way to boost your revenue.
6. Know your Business and Personal Credit Scores
Again, this is another one of the business loan tips for individuals who already have a business up and running. As you might already know, the credit score is a crucial metric that can either make or break your business loan application.
In addition to ensuring that your personal credit score is at or above the recommended level, you should also focus on enhancing your business’ credit score too. If you don’t have an idea of what your credit scores are, don’t worry. You can use any one of the many free credit score calculators online.
7. Know the Lender’s Requirements Before Applying
The eligibility criteria and requirements of business loan lenders can vary from one institution to another. And so, it is important to first ascertain what the requirements of a lender are before applying.
This can help prevent your business loan application from getting rejected due to non satisfaction of the laid out requirements. Proceed with your loan application only after ensuring that you’ve satisfied every single requirement of the lending institution.
