Articles

We have all heard the saying no one wants to lend you money when you need it. For a small business owner, it may feel overwhelming to secure a business loan. Here are some of the challenges a small business owner may face:

• Credit rating — in too many cases, a small business has no credit rating. This can be a challenge when applying for all types of credit, including business loans.

• Cash flow and income issues — often a small business cannot show a long track record of their earnings and cash flow. This could create issues when seeking loan approval.

• Length of time in business — small business owners often need funds during the first few years of operation to help them grow. Too often, lenders are only interested in businesses who have had solid income for two years.

• Other risk factors — lenders will take a look at the current debt carried by the business, whether the business can offer any meaningful collateral, and the industry the business is involved in. These risk factors can make it more challenging to qualify for a business loan.

Every one of these challenges can result in a business loan application being denied by a lender. However, there are some things that can be done to help improve the chances that your business will qualify for a business loan. Some of these steps include:

Step One: Building Credit Scores

In some cases, a small business loan may require the principals of the business to take personal responsibility for the business’ debt. In these cases, building your personal credit score may help obtain a better rate, or better terms.

To build a business credit score, a small business owner should ensure they have established trade lines, that public records remain spotless, and they are making sure their financial obligations to vendors are being met on time regularly.

Step Two: Understanding Lender’s Minimum Requirements

Each lender may offer various loan programs, such as a business line of credit, equipment loans, and real estate loans. Before a small business owner applies for a loan, it would be helpful to understand what they expect from a borrower.

When applying for a loan, if a business owner knows the minimum qualifications and requirements which the lender has for their loan options, then they generally have a better chance of meeting those requirements.

Step Three: Have Documentation Prepared Ahead of Time

There are a broad range of documents which are considered necessary to qualify for a business loan. Making sure you are prepared ahead of time tells your lender you are informed, prepared, and understand the importance of your decision.

Having documentation such as tax returns for all principals and the business, properly prepared balance sheets and income statements, bank statements, and a financial projection showing how the loan and repayment will impact your business may also be helpful to qualify for a business loan.

Step Four: Fine-Tune Your Business Plan

Most small business owners created a business plan when they originally launched their business. Whether you have an existing plan or you need to create a new plan, there are some items which must be included. Some of these are:

• Company mission statement
• Description of products or services offered
• Names and resumes of company management team
• Overview of the industry in which the business operates
• Operations plans for the company
• Current financials as well as projected financials
• Company strategy regarding marketing and sales

While not every lender will require a business plan, being prepared with one can add to your credibility and lets the lender know that you have a plan in place which outlines your business goals.

Step Five: Examine and Document Business Collateral

Collateral which can be put up to secure a loan can help a lender feel more confident that the loan will be repaid as agreed. Some of the common types of collateral you can consider include:

• Business-owned real estate
• Business inventory
• Business equipment

Keep in mind that not all inventory may be included. If your primary inventory is raw materials for creating a product, the chances of it being usable as collateral are not as good as if you had hundreds of pieces of your product available. Each lender will have different criteria for inventory, and it may differ from industry to industry, so having knowledge of their expectations can be helpful.

Contact Baker Boyer for Customized Loan Solutions

There are several advantages of working with a local lender. Baker Boyer works with staff members to make all credit decisions. Not only do we take into consideration your loan application, but we also take time to understand how your business interacts with our community. Our goals are always to make sure we are taking the time to understand what is in the best interest of our neighbors. When we have a full understanding of your goals, we will help you find the right business loan to help you achieve those goals. Call us today at (509)-525-2000 or fill out the contact form below and let us help you with your business loan needs.