You may think applying for a business loan is simply a matter of filling out the application. In truth, it’s more involved than that. In fact, there are many factors in the process that can affect your chances of approval. Some of these factors you cannot control, some you can. Knowing how to handle what you can control will help lead to easy business loan approval.
Easy Business Loan Approval: Questions to Ask Yourself Before You Apply
Before you apply, you need to ask yourself the following questions:
- What kind of loan do you need?
- How do you plan to use the funds?
- What type of lender will you use?
- Do you even qualify for a business loan?
- Are there other funding options that will work better right now?
- Can you afford a business loan?
Now, don’t just ask and answer these questions passively in your head. In contrast, be intentional. The answers will help you apply for the right loan for your business. Truly, this is a huge part of increasing the chances of easy business loan approval.
5 Tips for Easy Business Loan Approval
Once you know the answers to these questions, use these tips to ensure you have the best approval chances possible.
Tip #1: Make Sure Your Business is Set Up to Be Fundable
Really, everything from your business name and contact information to your business website plays a role. Surprisingly, even small details that seem inconsequential can cause a loan application to be delayed or denied altogether.
For example, your business needs its own phone number, and toll free is best. Then, list it in the 411 directory. Also, make sure your business address is a physical address where you can receive mail. Don’t use a P.O. Box or UPS box. Virtual addresses are okay, but some lenders will not accept them. If you run your business from home, you can use your home address.
You also need an EIN, and your business needs to be incorporated. A dedicated business bank account is a must as well. Furthermore, make sure you have all the necessary licenses to operate legally at all levels-federal, state, and local.
If you already have a business website, it needs to be professional. Even more important, make sure it is user friendly and well put together. If a lender sees a poorly put together website, it will not look good. Also, your business email address should have the same URL as your business website. Do not use free hosting services or free email services.
Tip# 2: Consider Collateral Options and Personal Guarantees
Of course, sufficient collateral is one of the best ways to get easy business loan approval. It reduces lender risk, which is one of a lender’s main objectives. Lack of collateral doesn’t necessarily mean denial, but having collateral definitely increases approval chances.
If you have good personal credit, a personal guarantee will for sure improve approval chances. Most traditional lenders will require it anyway. Still, you can sometimes reduce lender reliance on a personal guarantee if you have good business credit.
Tip 3# Evaluate and Improve Business Credit
If you have set up your business to be fundable, you already have a head start on this. To begin building business credit, you need accounts in your business name reporting to the business credit reporting agencies.
Before you can start, you need to get a D-U-N-S number from Dun & Bradstreet. Then, start working with starter vendors to get accounts reporting. This process takes time, so if you do not already have established business credit, and you need a loan now, you may have to rely on collateral and a personal guarantee to get you there.
Still, building business credit is wise, and it’s never too late to start.
Tip# 4: Research Lenders and Products
There are many types of loans and lenders. You need to know which ones will work best for you and your situation. The truth is, applying for the right product for your business, from the right lender, at the right time, will go a long way toward easy business loan approval.
Types of Business Loans: Traditional Term Loans
With a traditional lender term loan, you are almost always going to have to give a personal guarantee. If your personal credit score isn’t good, approval is unlikely. Of course, strong collateral can help with that.
So, what kind of personal credit score do you need to have in order to qualify for a traditional term loan? For most, a FICO of 750 is good. Sometimes, you can get approval with a score of 700+. Yet, the terms will not be as favorable.
If you have really great business credit, your lender might be more inclined to be a little more flexible. However, your personal credit score will still weigh heavily on the terms and interest rate.
Types of Business Loans: SBA Loans
These are traditional bank loans, but they have a guarantee from the federal government. The Small Business Administration, or SBA, works with lenders to offer small businesses funding solutions that borrowers may not be able to get based on their own credit history.
Because of the government guarantee, lenders can be more flexible with credit score requirements. It is possible to get an SBA microloan with a personal credit score between 620 and 640. The trade-off is that the SBA loan application process is lengthy.
Types of Business Loans: Lines of Credit
This is revolving credit, like a credit card. Rates are typically much better than a credit card however. For these, the application and approval process is similar to that of a traditional term loan.
Types of Business Loans: Non-Traditional Lenders
These are lenders other than traditional banks and credit unions that offer term loans and lines of credit. Generally, they offer more flexible approval requirements and a much faster application process. Typically, you can apply online and get approval in as little as 24 hours. Better yet, funds may be in your account within 24 to 48 hours after approval.
These can work well if your personal credit isn’t terrible and you need funding quickly. Additionally. they may be a good option if your NAICS code is high risk.
Knowing the different options, and what is required by each for approval, will help you choose the options that will work best for your needs and that you are most likely to be approved for.
Tip #5: Have a Workable, Professional Business Plan
For easy approval, you have to convince lenders that your business will be a good investment. It’s best to hire professional writers and researchers to help you write your business plan. If you can’t, there are plenty of free resources online to help with a business plan, including templates.
A well put together business plan should include the following:
- An Executive Summary
- Market Analysis
- Analysis of audience
- Competitive Analysis
- Plan for Design and Development
- Plan for Operation and Management
How to Get Easy Approval for a Business Loan
The simplest way to ensure you can easily get the funding you need for your business is to build strong business fundability. To do that, you need to set up your business with a fundable foundation and begin building business credit, among other things.
A business credit specialist can help you assess your current fundability, and guide you through the steps needed to improve it, if necessary. They can also help you find the best financing options for your business based on your current fundability. Get a free consultation today.