Almost all small businesses at one time or another have tried to secure an important small business loan, but were rejected by the bank. This can happen for a number of reasons, and unfortunately, many small business owners don’t know the steps they should take to increase their chances of approval. By making a few simple changes and adjustments, you may be able to get the financing you need.
1. Raise Your Credit Score
Many small businesses are rejected for loans because they have little credit history or bad credit history. If you have little credit history, you should immediately begin creating a respectable record. Always remember to make your payments on time and don’t exceed your credit limit. This will prevent you from making your credit score even worse.
2. Improve Your Cash Flow
Before approving a loan, a bank is going to look at your cash flow. If you can barely break even with your costs, the bank will not trust that you will also be able to afford your loan payments. Before applying for a loan, evaluate your cash flow. If it is too low, you need to try to lower your expenses and increase your revenues before you apply for the loan.
3. Prepare Yourself for the Loan Interview
Many new small business owners just don’t know how to prepare before meeting the bank. Bank officials are looking for much more than a simple explanation and handshake when they meet you. If you want to secure a loan, you will need to show business plans, bank statements, and any other materials that will show why you can be trusted to pay the loan back.
4. Consider the Size of the Loan
If you only are looking for a small loan, something under $100,000-$200,000, then you may have trouble getting help from a bank. Most banks prefer to make much larger small business loans where they can make a higher profit, such as loans of $500,000-$1,000,000. If you are looking for a smaller loan, you should instead look for banks and small business organizations that specialize in that. Community banks may be a good option that will consider smaller loans than the large national banks.