When running a business, there are a few challenges that you may come up against, especially if you’re just getting off the ground. The biggest issue tends to be finance, and how you’re going to grow your business without the capital to do so. This is where a loan for a small business comes in. There is a range of loans that you could choose from to suit your company, but there is one issue that you’ll need to think about – approval. Increasing your chances of approval before you apply for your loan is essential, and we will take a closer look at how you can do this below.
Benefits of applying for a loan
There are a few advantages that come with applying for a loan to use within your business. Generally, when you first begin to build your company, growth will be on your mind. Growing your brand can be difficult if you do not have the funds to pay for it – but this is where loans can be helpful. Applying for a loan allows you to recruit more staff and provide them with the equipment and training they need to help your business thrive. It also allows you to purchase larger premises to grow into or diversify the products and services your business offers. If you’re a new company and you’re simply trying to maintain a healthy cash flow, applying for a loan means you can manage your money more easily. Of course, if you’re thinking about taking out a loan, you’ll already be aware of some of the advantages that come along with it, which brings us to our next point.
How to improve chances of approval
As we can see above, there are many reasons why small businesses may want to take out a loan – but before you can see the amount of cash that you need making its way into your bank account, you’re going to need to be approved by your chosen lender first. There are a few things that you could do to improve your chances of being approved for a suitable loan – here are a few tips and tricks to help.
Improve credit score
Your credit score plays a huge role when it comes to being approved by a lender. Your business’s credit score shows how creditworthy you are – in other words, it shows lenders how likely you are to pay back the sum that they’re offering, and how much of a risk you will be. The higher your credit score, the better, and improving it before you apply can make a huge difference when it comes to not only approval but better repayment terms and interest rates.
Clear business plan
Some lenders may insist that you have a business plan to show them to help them make their decision. To do this, you should make a plan that outlines your company, as well as organisation and management, the product or service that you offer, and the financial projections that you’re expecting. This can help your lender to decide whether you’re a trustworthy borrower and means they can weigh up whether they think lending to you is a safe bet.
Demonstrate revenue and profitability
Showing lenders that you’re profitable and can demonstrate that you have a growing revenue stands you in a better position when it comes to being approved for your chosen loan. You can do this by providing your lenders with income statements and balance sheets, as well as tax returns, cash flow projections for the future, and anything else that may show your company is making money. This helps your chosen lender weigh up the risks of lending to you and allows them to decide whether you can pay the loan in line with the terms and conditions agreed upon.