What factors determine loan approval? How can I increase my chances of getting a loan?
Most lenders look for a few key factors when assessing a loan application: a strong credit history, a clear business plan, demonstrated business experience, and assets that may be put up for collateral. No bank wants a borrower to default on a loan, so through analysis of these criteria, banks try to determine how likely a potential borrower is to be able to repay his or her debt.
Loan applicants often lack control over many of these factors in the short term—if you have bad credit, then all you can do is start paying your bills on time and work to reduce your debt. A well-articulated business plan, on the other hand, can be created and/or improved immediately. When preparing one, be sure to emphasize exactly why you need the money, what you plan to use it for, and how you think it will improve your business.
When choosing a lender, be sure to identify a bank with a history of lending to businesses like yours. Big banks (banks with over $10 billion in assets) only approve about 15% of small business loans, whereas smaller banks approve loans at a rate of closer to 50%.You can check the lending landscape at https://www.biz2credit.com/small-business-lending-index
Plus, if you have poor credit or only a need a small loan, alternative lenders and micro lenders are great options to consider. Alternative lenders take a more holistic approach toward lending, which means they’re more likely to see past your credit history and focus on your current ability to repay loan debts. Micro lenders can be great for small businesses, as bigger banks can reject loan applications that are deemed too small to benefit their portfolio.
Can I get a loan if I showed a loss on my tax returns?
Whether the loss is incurred by your business or the sale of property or an investment, reporting a loss on your tax return can hurt your chances of getting a loan. Like a poor credit score, showing a loss on a tax return can indicate that you’ve experienced financial difficulties in the past, meaning that you might have trouble repaying a loan in the future.
Fortunately, there are credit solutions available to those with weaker financial histories. Alternative and micro lending is one such option. Alternative lenders take more than just your credit score into consideration when reviewing a loan application by assessing your business plan and experience in your field.
How much ownership needs to reflect on an application to qualify for a loan?
To qualify for a loan, you need to own a stake in the business, but in any business loan application, those with at least 20% ownership of the business will likely be required to sign as personal guarantors of the loan.
Ked Harley is a writer and researcher for Biz2Credit, a leading credit marketplace connecting small- and medium-sized businesses with small business loans, service providers, and complementary business tools. She is also a self-confessed coffee addict working out of New York City. Her interests include business and finance, world news, food, and travel, and she enjoys yoga and running in the park