Polish Your Business To Get Approved For A Small Business Loan
When banks and other lenders become stricter in lending to the small business market, it just only means that they are doing necessary efforts to reduce the risks on their part. If you want to get approved for a small business loan, understanding the risk assessment process used by banks and lenders will give you a better chance. To qualify, just remember the following 5Cs of business loan qualification.
Character. Whether a borrower is trustworthy or not to get approved for small business loans is assessed by banks through their character. This criteria for loan approval is usually comprise of personal the borrower’s personal information such as business experience and knowledge, references, education, personal and small business credit history. If you can get everything in this criteria polished up, then you’re one step closer for approval.
Capacity. A business’ cash flow is very important too. If you have a stable business with stable income, banks will see this as an ability to pay on your part and they will deem that you are a step closer to being approved for your small business loan. They will also check if you have alternative ways for repayment.
Collateral. Security is what banks want for their businesses. This is why there are secured business loans too. In case of default, banks want to have their investments secured. Collateral in various forms of assets reduces the risk for banks and other lenders because it serves as another method of repayment. Collateral can be anything like real estate, equipment, inventory, securities, account receivables and more. You can provide a signed document of personal guarantee for additional reassurance of payment. Banks as much as possible don’t want to exercise their right of seizing and liquidating the assets of their borrowers so providing guarantees should not sound that troublesome if you want to get approved. In many cases, banks will work diligently with their borrowers to find repayment solutions in case of default.
Conditions. For your loan for small business to get approved, banks also review the conditions at which you use your loan like for expansion or purchase of new equipment. External factors are also considered by banks because they can affect a business’ ability for repayment. These factors include competitors, economics, liabilities, and customer base.
Capital. The investment that a business owner puts into his own company sends a message of confidence in his business. It also connotes his ability to pay a small business loan. If you have a significant net worth or business equity, then you have better chances of getting approved for business loans. Business owners that are not willing to invest in their own company only tell banks unconsciously that they can’t have confidence in their business too.
Remember that each of these 5 Cs is reviewed by banks to help them determine the approval or rejection of a small business loan. Make sure that you are able to cover all these criteria and polish each and every one of them if possible so your small business loan application and approval will be as smooth as possible.