If you’re a small business owner, you know that getting a loan can be challenging. In today’s financial climate, lenders are more cautious than ever when it comes to giving out loans, and businesses with less-than-perfect credit often have difficulty securing financing.
But don’t despair—there are still many lenders who specialize in small business loans, and they’re happy to lend money to businesses that may not meet all the traditional lending criteria. You just need to know what you’re doing.
Here are some tips for securing a small business loan from a financial institution. Follow these tips, and you’ll be on your way to getting the money you need to grow your business.
1. Do your research
Find a business lender who understands your industry and knows what it takes to run your type of business. When it comes to securing a small business loan, it’s crucial to find a lender who understands your industry. Not all lenders are created equal, and not all lenders have the same level of knowledge or experience in certain sectors.
It’s important to find a lender who knows what it takes to run your type of business—they’ll be more likely to understand your needs and be more sympathetic to your situation. Ask the right questions before getting started, and make sure you do your research so you can find the best lender for you.
2. Show your stability
Even if you have less-than-perfect credit, lenders are more likely to fund your loan request if you can prove that the business is stable and profitable. Write a comprehensive business plan, detailing how you’ll use the money to grow your business. If possible, offer collateral or personal guarantees as additional security.
When applying for a loan, it’s not only important to create a comprehensive business plan; you also need to be able to provide your lender with up-to-date financial records. Businesses that do not maintain good recordkeeping often have a hard time securing financing, and businesses with poor credit or without collateral generally find the process even more difficult.
Working with a company offering outsourced accounting solutions is a good idea for businesses that need a bookkeeper. The company can help put the financial records of the business in order. It can also keep all your records updated.
3. Get a cosigner
A small business loan from a financial institution might be more likely to get funded if you can find someone to act as your cosigner, offering their credit to help secure the loan. Family members like parents or siblings are often willing to do this because they want the business to succeed. Friends are also good candidates for this role, though they may not be willing to sacrifice their credit in this way.
If you can’t get someone to act as your cosigner, find a business loan service offering loans to small businesses with less-than-perfect credit—the cosigner is often not required when applying for financing with these services.
4. Provide additional security
For larger loans, provide additional security for your lender in the form of equipment or other valuable assets. Or offer collateral to secure a smaller loan amount. If you own valuable business equipment, such as office furniture or vehicles, this can act as an asset on which your lender can place a lien. This will act as additional security for the loan.
If you don’t own valuable business equipment, some lenders might still allow you to provide collateral to secure a small business loan. The lender may require that this collateral be worth more than the loan amount—typically twice or three times that amount, for example—but it may be an option to consider.
5. Choose the right lender for you
Choosing the right lender for your business is important when applying for a small business loan. Shop around and compare different lenders, their loan programs, interest rates, fees, and other terms before deciding which one is right for you. You might find that some lenders simply do not deal with small businesses or may have certain types of funding programs for which you would be ineligible.
When it comes to obtaining a small business loan from a financial institution, make sure to choose the lender carefully. In addition to comparing interest rates and fees, researching the lender’s understanding of your industry can also help you find the lender best suited for your business.
The best place to begin your search is with your current bank. If you already have an account with the institution, it will often offer attractive rates on loans. You may also be able to expedite the loan process by using the institution’s services for processing and payroll.
If you’re not satisfied with your bank’s rates, turn to the Internet. If you have a good credit score and stability, you may qualify for a loan from an online lender that specializes in small business loans. These lenders often provide more flexible terms than traditional banks do.
Securing a small business loan can be challenging, but it’s not impossible. Many lenders specialize in loans for businesses with less than perfect credit and are happy to lend money to you if you know what you’re doing.