It’s an open book – small businesses can have a difficult time securing financing. So before coming up to lenders, be sure you have asked yourself: how do I boost my chances of being approved?
Meanwhile, here are a few helpful tips:
Establish that your business has a steady cash flow.
Cash is still king, a critical indicator of a business’ current and future performance. Demonstrating ample and stable cash flow is necessary for potential financiers to see that you are capable of fulfilling your financial obligations in a timely manner. In other words, be ready with your tax returns, bank statements and other financial documents. Expect questions on any fluctuations in your cash flow and offer an explanation ahead of time.
Maintain a reasonable debt load.
Debt load is how much debt you have that is shown on your balance sheet. You have to demonstrate that you can repay not just your current debts, but also the debt that comes in with your proposed financing. If your loan is intended for expansion, indicate how this incoming debt will help.
Sustain an encouraging payment history.
Financiers consider several factors when reviewing a loan application, and one of the most crucial is payment history. Your history should show that you have a record of paying down your debt and on time at that. If the financier has obtained a third party credit report on your business, ask to see it so you can check its accuracy. Such a report may not reflect your major business partners and other lenders who would be eager to provide a great reference, confirming your good habits as a borrower. Supply them with references yourself, and remember, these should be names of actual people you’ve worked with, instead of names of banks, your trade suppliers, etc.
Show sound business judgment.
Prospective lenders want assurance that you anticipate difficulties and that you have planned for such challenges very well. Moreover, they would like to see that you have management in place to overcome whatever obstacles come your way. All of these must be part of your business plan, which is obviously and absolutely needed for a solid loan application. As well, It should include a forecast for your business for at least two possibilities: what happens when you get the financing, and when you don’t.
Comparison-shop for financing.
Never assume your bank or the vendor will prepare the most favorable terms for you. Spend time checking out a number of companies and the financing options they offer. Find out all the details – Interest rates, terms, fees, and the rest. Then compare and pick the best.