5 fail-safe tips to improve your chances of getting a small business loan

If you’re a small business owner in need of a small business loan to grow your business, you may want to understand a few key things that will improve your chances of getting a small business loan. Understanding these key components will increase your chances to obtain financing and simplify the process altogether.

small business loan tips

Here’s my best tips for improving your chances of qualifying for business financing:

Tip #1Develop your business plan.

As the saying goes, if you fail to plan, you plan to fail. Developing a well thought out and researched business plan will give lenders a clear picture of the path you will take to grow your business. Your business plan should tell a concise and compelling story about your business. It should clearly display what problem you are solving, what’s the solution to the problem, who’s your target market, your revenue projections, and what results you’ve experienced so far (or expect to have once the business has launched).

Additionally, lenders want to know how you plan on using the money you borrow from them to grow. If you can clearly show this information in a business plan, you will increase your chances of getting a small business loan.

Tip #2: Be prepared for your meeting with the lender (if a lender meeting is required).

When you meet with a small business lender they will ask you questions regarding the information in the business plan to make sure you know what you are talking about. Your passion about your awesome widgets is good and we want that, but don’t let that be the beginning and the end of what impresses a potential lender.

You should also know and understand the company’s financial projections inside and out – this includes sales, revenues, profit margins, etc. This is where many people struggle.  You don’t need to become a CPA but you should make the honest and diligent effort to learn your financials, understand them, and care about them enough to not embarrass yourself when asked basic questions about them.

Tip #3: Build and maintain good personal credit.

Having a good personal credit history will most certainly make it easier to obtain business financing. Lenders can appreciate individuals that manage their debts properly. It would be wise to treat your personal credit as an asset so when you apply to get a small business loan, your credit will be good enough to qualify.

Treating your personal credit as an asset simply requires properly managing any debt that you obtain. This includes making timely payments and developing a long term relationship with lenders by keeping your accounts open with them for as long as possible. Your payment history and the longevity of your accounts weigh heavily on your personal credit score. Small business owners commonly (and mistakenly) think it’s okay to use personal credit cards for their business.  This will hurt your credit profile and lower your FICO scores — so avoid at all costs.

Tip #4: Build and maintain good business credit.

Building a good business credit history will enable you to separate your personal credit from your business credit as your business continues to grow. Many people don’t understand business credit and sometimes think it doesn’t matter. According to Creditera.com there were 45 million business credit reports pulled in the first 6 months of 2013 by Dun & Bradstreet.  Another 35 million business credit reports were pulled by Equifax Commercial.

Lenders are checking your business credit. Don’t make the mistake of thinking that your business credit doesn’t matter.  A note about “business credit building” companies – they are notorious for overselling the benefits and making oversized claims. Having good business credit makes sense but it’s not going to magically unlock millions of dollars of business financing for you in 6 months.

Tip #5: Use Credit Cards the Right Way.

Statistics suggest that about 4 out of 5 small business owners will use credit cards as part of their funding plan.  We are not here to tell you not to do that because you probably will.  In fact, where else can you get 0% introductory offers and get low-cost financing that doesn’t require collateral?  I would just encourage you to learn how to use them wisely by doing things such as separating your personal and business credit.  This starts with using business credit cards but goes beyond there.  Learn about treating your credit as an asset so that you can protect, preserve, and improve your credit profile as you borrow money.

Tip #5: Seek Expert Assistance.

Developing your business plan and building your personal and business credit takes time and knowledge. You may not have the time or knowledge to do it all alone and that’s okay. It’s not unlike legal and tax matters. There are a lot of occasions – both business and personal – to get the help of an attorney or tax professional. This is one of them.  And, it’s one of the reasons why building a business can often cost more than you originally project.  When it comes to getting help, seek value first, then consider price.

Personally, I love inexpensive but I do not like cheap.  Be thrifty, but be wise as well.  The largest group of “non-qualifiers” who come to us asking for financing are people who could have obtained their financing if they had only followed the very basic credit and financing direction of a professional.  Some may have chosen to not listen, but most of the time it’s that they did things on their own and never knew the hole they were digging themselves into.

The say knowledge is power.  They also say that experience is the best teacher. Look for opportunities to learn and grow.  Then listen to others who have made the mistakes themselves.  You may avoid a costly error that could threaten the stability of your business, or shut it down altogether.

Photo credit: Stockmonkey.com (Flickr)


TomGazaway

Tom Gazaway is the founder & CEO of Hawkeye Management. His company helps small business owners obtain financing to grow their businesses. In 2013, Hawkeye Management made the Inc 500 list of the 500 fastest growing privately held companies in the U.S.

Tom has written for Small Business Trends, Business.com, Dun & Bradstreet Credibility Corp, SCORE, and has written many reports, white papers, and eBooks about small business financing that are available on his blog, The Business Finance Lounge.

You can find him on Twitter, Facebook and Google+.

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