Getting a small business loan is rarely easy, especially if you’re planning to start a new business or have just recently started one. But, even if you have been in business for years, with today’s economic climate, banks and other financial institutions have become a lot more selective. In fact, 82% of small business loan applications are currently being denied by the big banks. Why are banks saying “no” to small businesses? It’s partly because they’ve had to take more risk out of their portfolios (after all they are lending with our money), and small businesses are inherently riskier than large businesses. As well, it costs banks just as much to underwrite large loans (over $250k) as it does small loans. But, most small businesses don’t necessarily need a larger loan. So, what can you do if your business needs funding?
Luckily, hundreds of online lenders have popped up to fill the void left by the banks. These online lenders are approving more loans than the bank, but you are still going to have to invest some time in finding a loan. If you are wondering how to get small business loan, the best possible advice we can give is that if you understand what these online lenders are looking for, you’ll be better positioned to navigate your way through what can often be a very complex loan application process. Preparing as much as you can beforehand will help you save massive amounts of time down the road.
Here are six tips on ways you can improve your chances of getting your small business loan approved.
1. Create a compelling story about your business
You know your business has great potential – otherwise you wouldn’t have started it – but if you can’t quickly and clearly communicate that compelling story to a lender, it will be more difficult for that lender to understand how the loan you want could improve your business prospects.
So it’s important that you create and refine a story that describes your business and its potential in just a few sentences. You should be able to explain in a short “elevator pitch” why your business will grow, what your specific competitive advantages are, and perhaps most importantly, why you need a small business loan and what you’ll do with the money.
Before asking how to get a small business loan, be sure you can answer WHY you need a small business loan.
2. Consider SBA loans or financing
The Small Business Administration (SBA) offers loan programs that can sometimes make it easier to get the funding you need, at the lowest interest rates available outside the bank.
Although the SBA does not directly loan money, it does partially guarantee loans that a bank might not otherwise make. This allows bankers to be somewhat more flexible in issuing you a loan.
But while lending standards for SBA loans can be a bit looser than for standard small business loans, bankers will still require extensive documentation. The process of getting an SBA loan may not be easier than that required for a traditional loan, but the chances of getting approved can be higher, especially if you have collateral and a good business history.
For newer businesses, the SBA has a “MicroLoan” program, where funds are made available through non-profit community-based lenders, but the maximum amount you can borrow is $50, 000.
3. Know what metrics matter
Evaluating your potential success in getting a small business loan has a lot to do with these three business metrics: annual revenue of your business, your average bank balance and your available collateral.
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