If you are looking for a business loan, there are three important things you need to pay attention to before you think about improving your odds of a successful application. These criteria vary based on your type of business. Therefore, considering the nature of your business would be a great idea before making a decision.
Numbers:
Before the lender looks at your numbers, you should take the initiative to evaluate critical business numbers such as revenue, cashflow, time in business, personal credit score, and business credit profile. Lenders look at your revenue in cashflow to evaluate whether your business has the means to make periodic payments. They also want to see a track record that demonstrates your responsible use of credit.
Although your personal credit score might not be best way to measure the credit worthiness of your business, it will likely be a factor for any lender evaluating your business loan application. Using personal credit for business purposes does not build your profile. Instead, it might even hurt your personal credit score. You should start building a strong business credit profile as early as possible.
Your reasons for borrowing:
It is essential to identify why you need the capital and how much you need before you talk to a lender. Different loan purposes could require different types of financing. For example, borrowing to purchase quick turnaround inventory is better suited for different types of financing than borrowing to build a new warehouse.
You need to know before you start looking whether you need a short-term loan, long term loan or a line of credit. Understanding your reasons for borrowing will help you know the type of loan you require. As a result, increasing your chances of getting your loan pre-approved.
Collateral:
You should be clear of how you and to off set the loan should something unexpected happen to you or the business. Banks would take collateral should you be unable to make all the loan payments. Most online lenders do not require specific collateral but they would require a personal guarantee and will find a lean on your business assets until the loan is repaid.
Remember, lenders really want the answer to three questions before pre-approving your loan. First, is about your ability to repay the loan. Secondly, is whether you will repay the loan, and finally is whether you have a plan to repay the loan even if something happens. If you can address these three issues, your lenders will be easily know what they need to know about your business before pre-approving your loan.
You should have a plan in place to assure a lender that your business is capable of paying that debt and that you will be able to make every periodic payment. Keep in mind that a pre-approval is not a loan approval and that a full application process would instead help you get the loan you need for your business.