There are at least 125 factors that affect the fundability. They can be broken down into 4 main categories. One of them is the Application Process. It is important to understand how to apply for a business loan in order to have the best chance of approval. To do that, you have to understand how the application process affects fundability.
Business Loan Application Process and Fundability™
Did you know that even the way you apply for a loan affects your chances of loan approval? This is because the application process is a fundability factor. If you aren’t careful, you could be denied before you get started all because of a flub in the application process.
Here is how to apply for a business loan to ensure that doesn’t happen.
How to Apply for a Business Loan: The 8 Factors of Fundability™ in the Application Process
The Application Process principle breaks down into 8 factors. They include:
- Lender negotiations
- Application format
- Lending product selected
- Application Process and Fundability
- Lender selection
- Verifiable business ownership
- Ability to verify business address
- Ability to verify business name
Let’s break down each one and talk about exactly how they affect the fundability of your business.
Timing and Fundability™
The first Fundability factor under the application process principle is timing. This has to do with when you apply for the loan. For example, you may have just paid off a lot of credit card debt. You are looking to do some expansion work on your business building, and you go to apply for a business loan.
The problem is, the payoff will not show up on your credit report immediately. Even if you wait a couple of weeks the balances may still be on your report. To the lender, it will look like you have a lot more debt than you actually do.
The same is true of UCC filings, liens, bankruptcy, and anything else that may be on your credit report. Even if you know it is time for it to come off, it can take awhile. If it is still there when the lender looks, it could cause denial.
This is why it is vital to track your business credit and personal credit reports. Then, you can know exactly what is on them, and what is not. This will allow you to better time your application for credit.
This is where having a good relationship with a lender that is familiar with your business and its industry is important. Applying for a loan with an institution you already do business with is helpful. A prior relationship can allow you insight to understand if you can negotiate with the lender.
For example, say you apply for a loan and get initial approval for $6000. However, you have a couple of credit card companies that you know are willing to extend substantially higher amounts. You may be able to share this with the lender and get approval for more.
In this digital age, it may seem like applying online is always the way to go. It is certainly easier and faster. However, sometimes there are substantial differences in what is available if you apply in person or with a paper application.
For example, some lenders require a personal guarantee if you apply online. However, they have a paper application that does not necessarily require one. That’s just one example. There are any number of possibilities.
Lending Product Selected
Choosing the right lending product for your business needs is vital. If you have a large project you want to complete, a business loan may be best. But, if you have a lot of smaller expenses and you just need to manage cash flow, a credit card or line of credit may work better. When making a product choice, consider if you will pay off the balance monthly.
If so, take note that a line of credit begins charging interest immediately. In contrast, if you pay off a credit card before the billing cycle is up, you will not pay interest.
The lending industry ebbs and flows, but not all lenders ebb and flow on the same wavelength. Some lenders may loosen their belts and lend more around the end of the year. Eventually, they will tighten up again. Chances are when they do, another group of lenders will decide it is time to increase lending. Knowing which lenders are lending more at the time of application can greatly increase your chances for approval.
The last three factors deal with verifiable business information on the application, such as:
- Business Name
- Business Address
- And Business Ownership
When you apply for credit, you have to include your business name and address on the application. The lender will then search with the Secretary of State to make sure you are the owner. Then, they will make sure your business phone number and business address match what is on file with the Secretary of State.
If they cannot find your business or verify the information, they may automatically deny. Alternatively, they may ask for tax returns. That is, if they have not already. Even if they originally ask only to verify information, due diligence dictates that they look at the entire return.
The thing about tax returns is, businesses do not want to show they make money. Because of course, the more you make the more you pay. So, if your return shows a large loss, that could result in denial.
This may not have been an issue if your information had been verifiable in the first place. They may have used other ways to verify profit, and tax returns may have not come into the picture. Still, if they have them for any purpose, they have to analyze them for everything.
How to Apply for a Business Loan: Getting the Information You Need
The question now becomes, how do you know where you stand when it comes to these factors? How do you know which credit providers are lending more at the moment?How do you know what is still showing on your credit report? Can you find out if there are different options based on the application format?
How to Apply for a Business Loan: Getting Help
Generally speaking, most borrowers can’t know without help. There are some things you can work on, like paying attention to your personal credit reports. Those are easy enough to monitor for free. But, what about business credit reports? Those aren’t free, though some monitoring options are cheaper than others.
Yet, lending trends, choosing the best lending product, and thinking of all the things that need to be consistent and verifiable for a lender to not deny you are much harder to determine on your own. Those are all things you definitely need help with.
This is where the business credit specialists at Credit Suite can really help. We are in a unique position to be able to see the big lending picture throughout the year. Our finger is always on the pulse of the industry, so we can help direct you toward lenders that are lending the most at the moment. We are able to see what options people are getting with various lenders based on how they apply.
And we can help you set your business up in a way that your information is verifiable and consistent. Then credit providers can see your business the way they need to see it for approval, and inconsistent details will not have to cost you funding.
How to Apply for a Business Loan: Fundability™ Matters
There are so many things that affect your fundability. It can be very difficult to keep track. Worse yet, credit providers will not usually tell you why you were denied. So, you might never know what the problem is. The best thing is to continually work on building and maintaining strong fundability.