Getting a business loan is difficult for most people mainly due to the restrictions set by lending institutions. However, adequate preparation can help overcome some of the challenges faced in obtaining business loans. Below are five insightful tips to help you secure loan easily.
i. Clear Errors from Your Credit Report
Lending institutions will consider your credit report before approving the loan you have applied. Credit scale known as FICO score is used by most institutions to determine your credit score. The FICO score ranges between 300 to 850 and the more you score, the higher the chances of getting your loan approved.
The best way to build your score is by paying your bills on time. However, even if you pay your bills on time, credit report errors can occur and significantly damage your score. According to a study done by the Federal Trade Commission in 2012, one in four consumers is affected by credit report errors. It is therefore prudent to ensure your credit report is void of any mistakes. According to CrediReady, “Creditors are legally obligated to respond to your dispute within a 30 day period. The government requires that the bureaus keep documents and information backing up their credit report entries. If the credit bureaus are unable to find the proper documentation to validate the negative item on your credit report, they are then required to remove it.”
ii. Know Lenders’ Requirements
Lenders have different qualifications and requirements. It is important to meet the minimum criteria required. For instance, a small business must meet all the Small Business Administration (SBA) requirements such as a healthy credit score and business revenue. Additionally, you must be current with all government loans such as federal student loan.
iii. Put Necessary Documents in Order
Loan application process becomes easier when financial, accounting, tax records, and other essential documents are in order. Being transparent with the financial state of your business is an added advantage when applying for a loan. However, online lenders require less documentation and the process of getting a loan is faster compared to banks.
iv. Make A Strong Business Plan
A good business plan will enable you to utilize the loan sufficiently and have the ability to repay on time. Most lenders will require a solid business plan that details how you plan to use the money. The plan should adequately demonstrate the ability of the business to cover expenses and repay the loan.
v. Have A Viable Collateral
Most lenders require borrowers to provide collateral to cover the loan in case the business fails. Collateral can be an asset such as land, equipment, etc. that can be sold. However, some online lenders do not require collateral.
There are different types of loans available from various lenders. Nowadays, online lenders have become an alternative to traditional lending institutions which have a lot of restrictions. Adequate preparation is likely to increase your chances of securing a loan.