5 Smart Strategies for Qualifying for a Small Business Loan

A small business loan can also help, provided you follow established guidelines as set forth by the federal Small Business Administration and its banking partners.

The following steps can put you in a better position in securing small business loan:

1. Write a detailed business plan. Writing a successful business plan takes work. You may need to hire a consultant to craft your plan.

There are several components to writing a business plan. The first step has you outlining your objectives, by spelling out what your business is all about and where you forecast it will be in three, five or 10 years. Your plan can discuss your customer base, market share, plans for expansion, staff and its ownership.

2. Submit an audited financial statement. Even the smallest business can benefit from an audited financial statement. Such statements are prepared by accountants and have a greater chance of receiving loan approval.

Audited financial statement also offer another advantage: loan interest rates typically are lower than average. The drawback here is that an audited statement can cost up to $20,000 notes Entrepreneur magazine.

3. Pull your credit records. Your business may have its own credit record, but lenders will want to look at your personal records too. If you have partners, their credit history will be examined as well.

A low credit score or other credit problem can thwart your chances of loan approval. Obtain copies of your credit reports and clean up problems before you apply for new credit.

4. Offer up collateral. Few loans written these days are unsecured or not backed by collateral. Even if you are approved for an unsecured loan, the loan amount will most likely be lower and the interest rate higher.

If your business owns assets such as equipment, vehicles or land, then these can be acceptable forms of collateral, securing your loan. Keep in mind that if your business goes under, your assets can be seized in a judgment against your business.

5. Be open to personal examination. Bankers look beyond your finances to determine if you have the character of someone who demonstrates responsibility.

Your banker will want to know about your education, your business experience and knowledge, and how you’ve handled credit to date. You’ll be asked to supply references; expect that these people will be contacted and questioned to verify your character.

Concluding Thoughts

The more thorough your business plan is along with your credit strength and character, the more likely you will be approved for a small business loan. If you are approved for a loan, then you have beat the odds as nearly half of all applications are rejected according to the SBA.