Every small business primarily start with an idea and after that in order to start the business in a successful way, need capital infusion. Both the traditional banks and online lenders are inclined to offer funding, in lots of ways the process of applying for a small business loan has become quite easier. But, it still requires borrowers to do their homework in preparing a small business loan application.
For many small business owners, a small business loan is an essential way to finance a new business or increase existing operations. But, getting funding for your business is not an easy thing to do. Here are six obstacles that can save you from getting the small business loan you need and a few guidelines on how to avoid these obstacles.
- Your Credit History
If you don’t have a strong credit history and an excellent credit score, you may find it quite difficult to even qualify for a traditional bank loan, never mind get a good interest rate. Most small business owners don’t meet the tough lending criteria and those with low credit score often must look to alternatives to the typical bank loan to get the funding support they need.
Credit reports are one of the factors that small business lenders use to determine a borrower’s credibility. If your credit report indicates a lack of past diligence in paying back debts, you might get rejected when applying for a loan.
- Limited Cash Flow
It is a factor that can help measure how much cash you have on hand to pay back a loan. Cash flow is normally the first thing that small business lenders look at while evaluating the health of your small business. Unsatisfactory cash flow is an imperfection that most lenders can’t afford to overlook. Consequently, it’s the first issue small business owners should keep in mind while figuring out if they are able to afford the small business loan.
- Lack of Business Plan
Having a business plan and sticking to it is way more attractive as compared to impulsiveness in the finance industry. Traditional lenders require that small business owners have a systematized, comprehensive and quantitative business plan in order to move forward with the loan process.
However, it is not unusual for small businesses to not have appropriate business plan or any plan at all, for that matter. In these conditions, small business owners at least project their potential earnings and profits before applying for a loan, so the lenders will have a concept of your profitability. You should also be prepared to provide an explanation for your plan for the cash you need to borrow.
When it comes to approaching potential lenders, business owners must have their act together. That means having all of the paperwork you will need on your loan application on hand. One of the things that can be a hassle while applying for a loan is if small business owner don’t have the documentation that the bank would require which include tax returns.
There are many resources that small business owners can consult when filling out their loan applications. The Small Business Administration (SBA), for instance, offers a relatively detailed loan application checklist for borrowers. Using these resources can reduce your possibility of coming across as disorganized or unprepared.
- Fail To Seek Expert Help
On the subject of making financial decisions for your small business, lenders need to see that you have sought advice from expert financial advisers. Accountants can be an essential source of advice for small business owners. There are many other places to find mentor or experts to speak, which include SCORE, a free mentoring service supported by the SBA. It connects you with the retired business owners with vast experience in your particular market.
- Prove That You Are a Good Candidate
Lots of small business owners approach small business lenders with a depressed attitude. To put it simply, they don’t demonstrate their lenders why they are a good candidate for a small business loan. It is advised to show some passion when applying for a loan.