About Lesson
To maximize your chances of receiving an approval on a business loan from a bank, it’s wise to look at the situation from the standpoint of the lender.
A lender wants to know:
– Exactly how this business will operate and why it’s expected to make money;
– Exactly how the money will be used;
– How you plan to repay the loan and over what time frame;
– That you’re willing to take a significant financial risk in the business;
– That you’re responsible and can manage this business;
– Who else is involved in management or operations, and that they will also be responsible for the proper use of the money from the loan.
The smaller the business, the more closely the individual behind it will be evaluated. Therefore, you need to make sure you get your own financial records in order before asking a lender for money to start a business.
A solid personal credit rating is also very important, since a small business is typically an extension of the individual who started it.
Prior to submitting a small business loan application, take some time and verify that your personal credit history is correct. Request your credit report from each of the major credit reporting agencies. Review these credit reports. If you see any errors on your credit reports, write the credit agency a letter detailing the error and ask for it to be removed, corrected or fixed. If there is an error that the agency will not fix, file a credit dispute report. A credit score about 680 or higher is very good and significantly increases your chance of being approved for a business loan.
Having an established business credit profile will also help increase your chances of obtaining financing on behalf of your business. Prior to you starting a small business, or if you already are running a small business with less than stellar credit, you need to make sure your business is creditworthy. In this tight credit environment, the only way you can qualify for business loans is to have all around good credit.
Providing a complete loan package to your bank will also help increase your chances of obtaining an approval. Often times business owners will go to the bank and verbally present their case to the banker without a packaged loan offering. Doing this will almost certainly result in a decline.