By Aakshit Rajput
Small businesses need financing to grow. And getting funds for your business can seem like a big challenge. Well that was the truth a few decades ago, but now small business loans are one of the simplest financial tools available to you. Through several government initiatives to stimulate local businesses and innovative programs from financial institutions, business loans help small businesses go global!
However, if you are a first-time applicant, it can be difficult to get approved for a small business loan. Here are some of the points that will help you get approved for a small business loan right away.
Check your credit score
If this is the first time you are applying for a small business loan, you should first review your credit score. Every financial institution has set a minimum credit score requirement. If you do not meet this condition, your loan application will not be processed. Applicants who have bad credit scores must first clear all their unpaid dues. If you’re a first-time loan seeker, try taking out a durable consumer loan and take the first step towards building your credit score.
Know your need
If you are considering applying for a small business loan, you must have given it some thought. How will you use the fund, what are the expansion plans and how will you repay the loan amount without straining your profits? Since small business loans are suitable for your needs, knowing what you need before you apply is essential. If you need funds to purchase plant and machinery, your lender expects you to apply for a machine loan. Likewise, if you want to cover operating expenses, the lender expects to apply for a short term unsecured small business loan or a working capital loan. Remember that borrowing more than you need will deteriorate your financial health in the long run.
When you first apply for a small business loan, you should first compare interest rates and offers with different lending institutions. Make a list of lenders with affordable interest rates. Now compare the many factors lenders use to decide the interest rate on a small business loan. Choose the financial institution that has the best deal for you. If you are having trouble comparing lenders, go to any loan aggregator’s website and you will be able to make a wise decision.
Know the document requirements
If you are a new small business loan applicant and have no previous relationship with the lender, knowing the list of documents will make the process easier. Your documents help a lending institution in assessing credit. Some of the common documents you will need when submitting your loan application are:
- Completed application form
- Proof of signature
- Proof of business continuity
- Company financial statements such as balance sheet and income statement
- Proof of income
- Proof of address and domicile
- Proof of identity of the business owner
- List of directors and their shareholders
Review the eligibility criteria
As a general rule, never apply for a small business loan from a lender whose eligibility criteria do not match your profile. This will either cause your application to be rejected or the lending institution will charge you a higher interest rate. As such, before initiating your loan application, carefully review the lender’s minimum eligibility requirements.
Add a co-applicant
Although a small business loan does not have strict guidelines for loan approval, sometimes adding a co-applicant can make the approval process smoother. If you don’t meet minimum credit score or income requirements, adding a co-applicant or guarantor to your application can help hide your flaws. When you apply for a small business loan with a co-applicant, it means that you are both equally responsible for paying off the debt. In the case of a guarantor, if the borrower defaults on a loan, the guarantor may be held liable according to the terms and conditions of the small business loan.
Even though a small business loan is an unsecured form of financing, putting your value up as collateral can help you get a loan, even if your credit score is ordinary. Check with your lender to see if you accept collateral. If they do, find out what kind of assets or securities they accept for loan processing. Providing collateral helps you get low interest small business loans quickly and easily. The guarantees can be your car, bank savings deposits, investment accounts, land as well as real estate.
If you are a new business loan applicant, prepare your business plan before submitting a small business loan application to the lender. Have the future expansion plan, sales forecasts, revenue forecasts, all on paper. If the lender is happy with your business plan, they can easily approve your small business loan application.
Your takeaway meals!
Now that you know everything you need to get approved for a small business loan as a first-time business loan applicant, pull out your pen and notepad and start jotting down the details. Why wait until tomorrow for your big business dreams to come true!
(Disclaimer: This is a sponsored article and includes sponsored links.)