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How to increase your chances of qualifying for a business loan

Updated on March 4, 2013

Getting a Small Business Loan

Armed with a basic road map of tips, both individuals and Sole Proprietors applying for a small business loan can significantly increase their chances of approval, and for the highest amount possible.

If your business is less than 2 years old, do not go to a traditional bank. Banks will finance very few businesses that cannot prove more than 2 years in business. If you have a food or service related business, those are industries that traditional banks provide less funding for in many cases. If you have been in business for less than 2 years, begin by looking for alternative sources of funding and non traditional loan products.

Make sure the person you are working with directly on the loan has loan knowledge and experience working with borrowers, and is not just a representative that is following a script and pushing to you fill out a loan application. It is the sole job of many of these representatives to bring in as many applications as possible. They often have limited or no involvement with what happens once the application is submitted.

Apply for the lowest amount that you need, don't go for the "home run". Many borrowers make the mistake of believing that asking for as much as they think they can get is the best way to go. Asking for as much you can is one of the best ways to be declined. If you really only need $50,000, don't ask for $200,000 because you believe that asking for the moon up front may get you $100,000. It doesn't happen that way, and you probably will only succeed at getting a decline.

If you have good financial statements and bank statements which reflect good cash flow, submit them along with your initial application upfront, even if you are not asked for them. Avoid the mindset that you are trying to provide as little information as possible. Many people do not want to provide financial statements. If your statements are strong, to the contrary, this is something you want to provide because it will strengthen your request.

If your company has more than one owner and the other owners have strong credit, consider how much your company wants. If the amount of the request is substantial and the other owners have strong credit, then it may be the best decision for them to be co applicants on the application. Having 2 strong signers rather than 1 will significantly help many loan requests. If you are lucky enough to have a high net worth, provide a personal financial statement and the lender will give significant consideration to it. If the lenders inquire about certain assets on a personal financial statement, make it clear in your answer if you are not willing to put up certain assets as collateral.

If the business has a strong business credit report, provide the business credit report number with the application. If the business credit report is missing some strong trade references that have a high credit limit, provide those to the lender at the time of application. This is important because if you are applying for $100,000 and the highest trade reference on your business credit report reflects $25,000, yet the business in fact has a $100,000 comparable reference, you may be significantly low balled on any approval by not providing the reference.

Be truthful, but do not volunteer information that will cast the request in a bad light or make the request look riskier than it needs to look. Many people make the mistake of giving information they did not need to give. Look at the request similar to a job interview. If your business plans to relocate, begin a major new product line, buyout a partner, sell the company, layoff or hire significant personnel in the next year or two, do not volunteer this information. You only need to consider that the lender will ask you whatever they are interested in knowing about.

If you are approved and you feel the amount or terms may not work for you, you can ask why and ask for better terms. If you ask for better terms, justify why, and be prepared to not close the approval immediately. If you can wait a few days, the lender may come back with you with better terms. However, do not tell the lender that the approval has to have certain criteria to be acceptable to you. Remember the old saying, "he who has the money makes the rules". There will forever be at least some truth to that. Make a case, not a demand.

If the lender asks for too much collateral, just say no. If they stand by their collateral requirement, you can always choose to come back and give them the collateral they ask for. Lenders will often ask for more collateral than they are willing to accept. Review their collateral request carefully first before agreeing. If they ask for additional collateral, ask for a higher approval amount for your business loan.

Whatever your approval amount is for, ask for an amount higher that equals 10%. Many lenders are willing to automatically increase an approval by 10% simply upon a verbal request and nothing else.


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