Small businesses may be the engine of our economy, but many small business owners view the financial lending process as complicated and frustrating. Too often, growing enterprises find themselves shut out when they attempt to obtain small business loans. There are many ways to improve your odds of getting a loan.
Here are 4 key things to consider:
- Put yourself in the lender's shoes – Why should they lend you money? When applying for a loan, treat it as if you're applying for a job. Instead of a great resume, however, you need a stellar application. That means understanding your financial situation and deciding what you can use for collateral, which might include your house. A business person who does the latter shows they believe in their business. Cash flow and credit quality are other key factors. And dress professionally; if you look like you don't need the money, you're more likely to get it.
- Figure out how much money you really need – Businesses too often seek more money than they really need and, the more you seek, the more likely you will be rejected.
- Always consider U.S. Small Business Administration-backed (SBA) lenders – Many businesses incorrectly assume they aren't eligible. SBA loans often feature low interest rates and generous repayment terms. Also note that just because one SBA lender turns you down, not all lenders will do likewise. Other programs such as the U.S. Department of Transportation’s Short Term Lending Program (STLP) and the Small Business Lending Fund (SBLF) are also viable options that should not be overlooked.
- Know what you're getting into – That means learning the annual percentage rate (APR) of the loan. Know what the fees will be, as well as any prepayment penalties. Be an informed shopper.
Take note that the loan application process is long and involved. You’ll need to decide whether a large, low-interest loan is more important than fast financing. As previously stated, your decision ultimately depends on what you really need. Be smart. Be realistic.