Getting approved for a business loan can be a challenge. Banks are more strict in their lending standards. All the same, it is a business loan that most often helps a business expand or even to stay on top of the payroll.
And while it can be quite a hoop to jump through, this article will explain how to get an approval for a business loan.
A Word About Personal Guarantees
First, we’d like to clear something up. There are tons of articles about how to establish business credit, and how important it is to have business credit separate from personal credit.
However, in today’s financial climate, it’s not that simple, no matter what they say. If you even apply for a business card, the banks want a personal guarantee. They’re going to check your personal credit in order determine your eligibility.
If you have good credit, then you’ve made it over one hurdle. But if you know there are going to be dings on your credit report, your score is probably too low. There are ways to get it back up. Fix that first before you go on to the next step.
Determine Your “Why”
If you have a strong enough “why” for the bank, and you can give evidence to back it up, they will provide the “how.”
So figure out how the loan is going to benefit your business. It’s not enough to say “to make more money.” That’s obvious. Dig deeper.
For example, if you’re purchasing equipment that produces your product quicker, write down how the money to buy the equipment might lead to increased production, which will increase revenue. Think beyond the purchase. Think about the benefits the business will get down the line.
Or maybe you’re planning to rent a commercial van for deliveries. What benefit will that bring to the business?
It’s usually about how that loan will lead to increased earnings, which will help you honor your obligation to the bank. That’s the first thing a bank is going to be thinking about – how you intend to pay the loan back.
If you’ve done your research, and you can put it all together so it makes sense to the bank, then you’re one step closer to getting approved.
Prepare Your Paperwork
First, find out what paperwork you will need from the bank to qualify, besides the application. Many banks will provide a checklist. If yours does, get one, and if there’s anything on the list that you have questions about, a banker will be glad to answer them. Otherwise, work on getting everything on the business loan checklist ready ahead of time.
But there’s other paperwork you need to prepare. Some of these items might be on the bank’s checklist, but here are some of the things you may need to include with your application:
- Financial documents, like your annual revenue,
- Income tax returns, both personal and business
- Bank statements, both personal and business.
- If you’re a corporation or an LLC, you need your articles of incorporation
- Balance sheet
- Income statement
- Resume – some banks might ask for this to see what kind of business experience you have
- If you don’t have much of an operating history, they may want a financial projection. But they might ask for it either way.
- Business plan – important, don’t miss this.
It’s a lengthy, time-consuming process, but don’t give up. Get your personal credit straight if need, figure out the big “why” for the business loan, and gather your documents. Eventually, you will reach the goal of getting approved for your business loan.