Applying for a business loan is your best option when you are starting a business or aiming to have additional capital. You can use the funds to buy equipment, add items to your inventory, rent a larger space, or hire new staff.
A loan application may be the defining factor that leads to either success or failure in getting funding. A full understanding of the barriers that prevent you from getting a loan can help you transform aspects which will give you a good impression to lenders.
#1 Bad Credit Report
Credit reports are one of the most basic requirements that lenders ask for to assess your loan application. Lenders use credit reports to analyze if the applicant is diligent in paying back debts. If your credit score is poor, then there is a chance that your loan will get rejected.
Unfortunately, for start-up businesses, lenders use the owner’s personal credit report as a part of the loan assessment. Some owners may have poor personal credit scores due to an illness, loss of a loved one, or other devastating circumstances. While most may be honest, hardworking individuals, a bad credit report can be a big hindrance in making it to the world of business.
According to lenders and financial experts, it is hard to register and qualify for a small business loan if you have a credit score of lower than 700. Lenders favor applicants with a score of 720 and higher. Higher credit scores increase your chance of getting approval.
Now, if you have a score of under 700, financial advisers suggest fixing your score first before applying for a loan. Start by checking if there are any discrepancies or errors in the credit report. If the report is accurate, make sure to regularly pay any existing debt on time until you increase your credit score.
Moreso, if you need a lot of time to get your credit fixed and need the funding as soon as possible, you might want to consider other financing options, in which credit scores have little to no impact.
#2 Restricted Resources
Your business resources show your capacity in paying back a loan. It is also called cash flow. It’s one of the most common factors that a lender checks as it shows the status of your business. A business with restricted resources is a red flag to lenders.
Careful management of your cash flow is essential to running a business, and not only when you need to apply for a loan. Do not wait for your business to struggle when you can find ways to prevent your business from leaking cash flow.
If you are unsure of how to assess the current financial status of your business, seek the help of financial experts, like here in Bizzloans. A financial expert and planner can help you gain a thorough insight into your business so you can find ways to make your business better.
#3 Inadequate Business Plan
Building a plan and doing your best to act according to it is essential. Lenders look for a well-designed business plan when a person applies for a business loan. An owner who does not have a plan or just has a quick-sketched plan does not sit well with moneylenders.
There are many small business owners that do not carry a formal business plan with them when applying for a loan. This situation is the reason why their loan application gets disapproved. Therefore, financial experts highly suggest that business owners, no matter how small or big their business is, should put time and effort in devising a comprehensive business plan that could impress lenders.
A basic business plan should have a summary of your company profile, a detailed description of your products and services, and a financial report, including your cash flow. You may include your plan on how to use the funding and how it will help your business grow if your loan gets approved.
#4 Multiple Loan Applications
Some business owners might think that they can increase their chances of getting funding by applying for multiple loans. However, doing such alerts credit bureaus, which may eventually lead to refusal of application. Minimise shopping around for loans, and ask the lender what type of credit check they’ll do when you apply for a loan. Go for soft checks that won’t affect your credit score, as hard credit checks may deduct points from your credit score.
#5 Skipping on Expert Advice
Seeking advice from financial advisers may sometimes seem too far-fetched from owners, especially for small businesses. However, if you are to apply for a business loan, it is smart not to skip on expert financial advice to understand what your business actually needs.
You can seek advice from accountants. They can be a good source of information as they can provide a grounded perspective on business capital. Business owners can also consult networking organizations to learn more about their funding options and the requirements they need to prepare.
Takeaway: Take Your Loan Seriously, Aim for the Approval
Creating a solid business plan to get additional funding is a good start when you are applying for a loan. Show enthusiasm and keep your focus. Taking your loan seriously through bringing in complete and correct requirements shows the lender how sincere your intentions are.
Talk to lenders like you are telling your business story. Tell them that you are putting your mind and heart into your business and that you are determined to give your best to your customers. Keep that in mind during the lender interview and approval will be within your reach. However, make sure that your enthusiasm does not end when you get your funding. It should follow through until you reach your goal of success.
If you are still unsure of what steps you should take, feel free to consult with our financial experts TODAY. We, at Bizzloans, only aim to help you grow your business. Get a quote now and learn your options from our experts.