Five ways to improve your chances of getting a business loan
Whether you’re a start-up or an established business, getting a loan can be a major factor towards continued growth and success. But with so much information out there, it can be hard to sift through it all. Consider these five steps to maximise your chances of getting a business loan.
Find a loan broker with an understanding of your industry
Banks make loans. Lenders make loans. That’s a core part of their businesses. So, it makes sense you’d approach a bank or lender to get a loan. But here’s the catch… not all lenders are equal!
Finding a bank or lender with a proven history and specialised knowledge in your industry is a great way to improve your chances of acquiring a business loan. Why? It’s in their best interests to help you succeed and recoup their investment.
Also, if you can find a lender who’s successfully partnered with your industry before, you’ll find someone who sees the big picture the way you do.
The same goes with finding the right loan broker. Merchant Cash will take the same approach to match you with the right lender. We’ll be asking if the lender has a history of financing small businesses. Will they be flexible with your changing needs? Are they able to outline their strengths upfront regarding your industry? If they can safely answer all these questions, we’ll consider them on the right track.
Keep in mind, your relationship with a loan broker or lender will likely last for years. So, it’s a decision that should not be made lightly.
Understand your credit score
Please excuse the macabre colloquialism, but if death and taxes are certainties in life, then right up there too is your lender checking on your credit score to help assess your application. Your credit score, or credit rating, is a number between 0 and 1200 that reflects on your history of debt and debt repayment. Both personal and business credit scores are factors when applying for a loan, though the type of loan will affect how much these are prioritised. Essentially, the bank needs to know how likely you are to repay your loan, and they’ll use your credit score to gauge this.
Sounds scary, right? Not so much. Improving your credit score can make the difference between a successful loan application and a rejection, but at the same time it’s only a part of the decision-making process.
Things to keep in mind when dealing with your credit score:
- The most important factor is whether you pay your bills on time
- Any late, or missing, payments will negatively impact on your credit score
- The less debt your business currently has the better
- The age of your business will also impact your credit score. Many lenders will require you to have been in business for at least 12 months to get a loan. With larger loans, they may require at least two years of trading history.
Merchant Cash can advise you on your credit score and how it might affect getting a loan.
Get your financial documents in order
Luck is preparation meeting opportunity, or so they say. If you’ve got the opportunity to apply for a loan to benefit your business you’d better be prepared. Here is a list of documents that lenders may want to see:
- Business and personal tax returns
- Income statements
- Profit and loss statements
- Balance sheets
- Cash flow projections
- Current loan documents or lease agreements
- Any other relevant financial statements
Different types of loans will require different documents but this is a great place to start. Outside of the basics, you can improve your chances of success by showing a lender that the loan is low-risk by bringing additional financial projections for the next three years plus an executive summary of your business plan. Remember, when it comes to your application, it’s better to have too much information than not enough. Lenders want all your financial documents in an easy-to-read application. You’ll need to offer clear, direct information that shows them why your business is deserving of a loan.
Merchant Cash will work on your behalf to make sure that you have the right documents and that they’re presented in the best way possible.
Know the common ‘loan language’ terms
We’re stating the obvious, but you wouldn’t enter negotiations for a pay rise in Spanish if you barely spoke the language. That would be crazy! The same goes for pressing your business loan application, with the financial industry speaking a language all its own. Knowing what you’re after, and just as importantly, what other options are available, will set you up for success.
Here’s some common terminology to be aware of:
Term loans: A loan from the bank for a specific amount with a specified repayment schedule. This may involve a fixed or floating interest rate. Many banks offer term loans to small businesses to provide the capital they require for month-to-month trading. These funds may also be used to purchase fixed assets such as equipment, inventory or other big-ticket items.
Secured loans: These loans are generally easier to get and involve the pledging of an asset as collateral for the loan. These tend to be offered to established businesses who can provide full financial documentation for at least the previous two years.
Unsecured loans: Unlike secured loans, these loans are supported by the business’s credit worthiness, rather than physical collateral. They are also known as signature loans or personal loans.
Vehicle loans: These allow the borrower to purchase a vehicle with the loan secured against the cost of the vehicle. At the end of the contract, the borrower retains the full title of the vehicle.
Lines of Credit: A line of credit is an arrangement between a bank and a business that establishes a maximum credit amount. The borrower is permitted to access these funds at any time, if the maximum amount is not exceeded. These options are highly flexible and allow the borrower to use only what is required. Interest is also paid on the credit used, rather than the total credit maximum.
Let your business plan make the pitch
Now that you’ve found the right loan broker and got your application up to speed, it’s time to make the pitch. What are you pitching? Yourself! Your lender wants to know why you need the money. Your job is to tell them by outlining your plans for the business. Think professional meets passionate and you’re on the right track.
Here are some basic areas your pitch should cover:
- How much money do you want? Be straight to the point. Be as accurate as possible. Let the lender know what you want from them to get the ball rolling.
- Why are you seeking a loan? Communicate your specific plan to show that the money has a purpose. Upgrading your equipment? Refinancing existing debt? Let them know!
- How will the loan go towards repaying itself? This one sounds confusing, but bear with us. The lender needs to know how the money going out will translate to the same money coming back in. This is your chance to show off your business plan. Be honest and clear about your financial projections so the lender can see your vision the way you do.
- How will the repayment take shape? Lenders want to see a pattern of credit repayment. Bring along graphs and easy to read charts if you like. Anything that shows monthly or yearly sales and expenses to prove that your business has the cashflow needed to repay the loan. Convince them of your business’s profitability.
Merchant Cash will take your pitch to the right lender and act on your behalf to make sure you get the loan you need.
If you want to improve your chances of getting a business loan, Merchant Cash would be happy to advise you. Tell us what kind of loan you’re after here, or just contact us for a chat and more information.