Many small businesses struggle to get financing. They should not give up hope, as there are many financial institutions around that can help small businesses with their capital. These financial institutions offer roughly $300,000 or less to get small businesses up and running.
Before approaching the lender, it is important to know your business, the amount you need and the best way to maximize your chances of approval. Here are six factors lenders look at before issuing a loan:
1. A steady cashflow
Many small financial institutions do not review your credit score and are only interested in your cashflow. Cashflow predicts the business’ health. This can be an advantage when securing a small business loan even if your credit score is not at a level that will secure an approval.
It is important to have records of your cashflow statements and to keep them ready when applying for the loan. The leader will want to look at the history of your cashflow to review your business performance over the months or years you have been in business.
2. Strong business judgement
The lender will review your business as a whole and will want to know why you are requesting for a loan. You have to demonstrate strong business acumen. You have to explain how you will invest the funds for your business and how important these funds are for your business to succeed.
Be familiar with your business plan and objectives. Demonstrate that you have the knowledge, ability and experience to take your business to the next level.
3. Explanation on how the funds will be used
Lenders will want to see what areas you will be focusing on. Apart from demonstrating strong business acumen, you have to be thorough with the funds you need. You may think that asking for too little will increase your chances of an approval. This would limit your business growth and you may find yourself seeking for additional business loans that will only increase your debts.
Instead, you should note down the maximum the lender is offering and then build an estimate of the funds you need. Make sure to consider all unforeseen expenses. Companies who are successful with small business loans usually use it for renovations, inventory, expansion, equipment, marketing and advertising.
4. All supporting documents
It is always good to be prepared with paperwork and supporting documents. When submitting your application, you can immediately enclose all your supporting documents so you do not lose time in gaining an approval. Go through the checklist that the lender provides. The checklist is normally available on the lender’s website. Ensure you have all the papers and documents listed on their checklist.
5. Business potential
Lenders want to be confident you can pay back the loan so they will review all aspects of your business and its potential. The lender will be interested to see how your business is performing over the years. Ensure to present a positive trend in growth.
Have all financial statements, sales records and other reports to show your annual growth. If there was one or two months you achieved less sales, ensure to explain the reasons. The lender will also see if you have the ability to run the business profitably. They will probably ask about your experience.
6. Meet their criteria
There are three or four basic criteria that you have to meet before you can approach the lender. They will want to know if you have been in business for a minimum of 6 months, earn a certain level of cashflow and have the proper local registration in place.