Business Loans - 8 Ways To Improve Your Chances For Approval

Business Loans - 8 Ways To Improve Your Chances For Approval

In order to have your small business loan approved, your application must meet the requirements of the lending institution you choose. Be aware that some lending institutions approve loan applications only from perceived low-risk small business operations while others are able to work with businesses that have a higher perceived risk. Regardless of what kind of business you are in, there are 8 things you must prepare in order to increase your chances of having your small business loan approved.

1. Know the reason you need the loan. The lending institution will asses if the amount you want to borrow is necessary for the type of business you have. Your loan amount needs to be the right amount that will sufficiently cover your business operating needs. Be prepared to show the lending institution how and where you will use specific amounts of the loan in your business operation

2. Know how much you need and how you intend to pay back the loan. Provide the lending institution with your proposed payment schedule. For instance, for a $10,000 loan, you can propose to pay it back in 5 years, with payments made monthly or quarterly.

3. Provide details on how you plan on paying the loan. For instance, you can inform the lending institution that you will pay them with the money from the additional profits you make on your products as direct result of reduced running costs.

4. Provide details on collateral you can offer the lender in exchange for the loan. Providing collateral can reassure the lender you intend to pay back the loan. This also ups your chances of getting your loan application approved especially if you are perceived as a high risk borrower.

5. Provide the lending institution a business plan. This will provide the loan applications officer all the information he needs to determine whether or not to approve your loan. A business plan will answer the lender's basic questions about your business.

6. Provide the lender three years of financial statements. If you have an accountant, ask him to prepare the documents for you and sign it.

7. Provide the lending institution with your current set of management accounts. Again, this document can be prepared by your accountant or you can prepare it yourself using an accounting software program.

8. Provide the lending institution with reports that show your creditor (payables) and debtor (accounts receivables) accounts.

If you are a newly established small business, or you have only been in business for a short while, the business plan and collateral are two important things you need to have along with your small business loan application.

Spend some time going over your presentation to the lending institution. It's better if you can practice on a family member or colleague. Ask them to assume the role of a lender and ask you questions. Also try putting yourself in the lender's shoes and find out where your presentation is lacking.

All of these steps are ultimately for your benefit. Even before you apply for the loan, by going through this process you may discover things that cause you to adjust your proposal. Most importantly, carefully preparing your application will assist you to be approved for your loan!

In this article I mentioned the importance of having a business plan. You will enjoy our article that details the 5 steps to prepare a business plan.

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