If you’re a business owner looking to expand your enterprise, you’ll likely have the need for some additional financing at some point, whether it’s to hire more staff, acquire extra inventory or move to a new location. With a growing number of lending options on the market, businesses these days are no longer limited to simply begging the banks for a loan. However, whichever lender you choose to apply to for a business loan, you’ll want to maximize your chances of approval.
We often here about what we should do in order to secure business finance, but there are many things that can actually hinder your chances of approval. Here we discuss and share a few tips on what NOT to do when you are applying for a business loan, as well as some recipes for a successful application.
1/ DON’T apply without organising your financial records properly.
Many lenders will ask for business and personal bank statements, the last two years of tax returns, pay slips and other supporting financial documentation. If you haven’t prepared these materials, at best you will delay your application and, at worst, risk rejection as you will look unprofessional in the eyes of your lender.
DO start gathering necessary documents well in advance of a loan application, and collect more than you think you’ll be required to show. That way, you’re sure to be ready to access that cash as soon as you need it. It may seem like a chore, but it is essential and will pay off in the long term. Make sure everything is up to date, too!
2/ DON’T leave errors on your credit report uncorrected.
Your credit report score is one of the most important factors for any lender in making the decision on whether or not to extend credit to your business. Many applicants don’t check their credit reports carefully and are unaware that these may contain inaccurate information that can seriously harm their application and hinder their chances of being approved.
DO order a credit report at least six months before any loan application. Check the details of your report thoroughly and correct any errors by writing to the necessary parties – if there’s something you’re unsure of or think could be incorrect, make sure you question it.
3/ DON’T rush into a financing agreement.
If your business is in dire need of cash, it’s tempting to jump at the first offer of finance that you get from a lender. However, there are many alternative financing options on the market so it’s important to review all the options before applying. Finding the best lender for you will depend on your type of company, how long you’ve been in business, how much you need to borrow and your collateral assets, among other factors.
DO seek out a financial adviser to discuss the options available to your business. This small investment should reap rewards in the long run. Remember to only lend what you can afford, it can be tempting to apply for plenty of cash to fulfil all your business dreams, but don’t forget repayments and interests rates won’t be too far away.
4/ DON’T make major purchases prior to a applying for a business loan.
Buying anything big on credit, such as a house or car, will affect your debt-to-income ratio and may negatively affect your chances of getting further credit for your business.
DO wait until you’ve secured the business loan before considering large purchases for yourself using a credit card. If you can’t afford to buy it outright, then don’t buy it.
While the big banks may still be reluctant to release funds, there’s a growing number of lending options available for small businesses.
Following these four simple rules will ensure you’re in the best position to have your loan application approved, as and when you require it.
Author: Melanie is a business and finance editor, offering business finance related tips and advice articles for small businesses. For more visit Capiota.