Getting a business loan can be downright stressful and frustrating. There are the long applications demanding copious amounts of information and after all of that effort, you can still wind up with a rejection. That’s a hard pill to swallow. It can happen to you and even happens to well-established companies.
So how can you increase the chances of getting a business loan?
First, the stats
58% of businesses can’t nail a loan at the big banks, essentially freezing their dreams and goals in place. According to recent data from Lending Express, within that 58% of businesses that can’t qualify at the banks, there are still 14% of ‘worthy’ businesses that are just inches away from being able to qualify for business loans.
You may be thinking, what about alternative lending? It’s a great option for many. However, it’s always good to know your options and understand them before making a decision.
Here we take you through what you can do to boost your odds of getting a business loan as well as how to reduce your ‘riskiness’.
1. Clean up your credit score
No way around it: business and personal credit scores are important. Credit scores are a factor that comes up again and again, and for good reason. Your credit scores make up the most influential factors when it comes to getting approved for a business loan from most sources. If your business is young, it wouldn’t have had the opportunity to establish much of a business credit score, which means lenders’ eyes will probably fall on your personal credit score.
Your ability to pay up on time is what’ll draw or deflect lenders, so make sure to set up automated payments so that you never miss one again. If it’s financially possible for you to do so, get current and work on paying down any existing borrowing so that you can improve your utilization rate (the ratio between what you owe and your credit limit for your various credit cards and lines of credit).
Building a good credit score takes dedication and patience. If you haven’t got the time to build up an excellent credit score, know that there are alternative options—even for those with lower scores (more on that later).
2. Start mixing that credit—but not too much
Another area of your credit score that you should keep an eye on is your credit mix. Having experience with different types of credit is actually seen as a good thing in a lender’s eyes – it shows you have more experience with juggling different types of financing.
Make sure however, that you don’t open accounts just for the sake of it, this can backfire big time in the long-run. You need to be sure that you open them only as you need instead of, for example, taking on an installment loan that you simply can’t afford just for the sake of mixing.
3. Build a healthy business
Getting your business to not just stand, but run is a challenge that every business faces.
Besides your credit score, it’s your business’s gross monthly revenue and overall ‘health’ that lenders want to see. They’ll be interested in whether your business is capable of generating not just a trickle, but a sturdy revenue with a solid cash flow. The more stable your cash flow, the less risky you’ll appear to lenders.
To keep gross monthly revenue nice and high, you’ll need to master the art of preventing your funds from running dry and find ways to increase your revenue. Whether it’s through increasing your customer base, encouraging returning users or even raising your prices (don’t overdo it, you’ve got to find that sweet spot), there are hundreds of ways to go about this!
Now if only there were such a thing as a hospital for businesses, where you could stroll in, have a check-up and then leave all fixed-up. Well, this doesn’t quite exist yet but there is a next best option and many things you can do to make your business more healthy…
Lending Express has a new dashboard ‘Lending Score™’, where businesses are deeply analyzed through AI and machine learning technology and then allocated a personalized funding profile. Each business is guided with insights and step-by-step actions as to how to increase their score (based on how their business looks in a lenders eyes) and ultimately find the shortest path towards funding. In the meanwhile, the business will be shown which loans it can qualify for (if any), and presented with how to improve its “fundability” and unlock better funding opportunities.
4. Get a time machine
The longer your business has been open, the more data there is to analyze. Most lenders want to see at least six months (sometimes even two years) worth of data, though the most recent three months of your business are the most important. For startups, business age, unfortunately, is something that there is little control of and perhaps a time machine would be the ultimate solution to this one.
If a jump into the future isn’t possible, don’t worry. Young businesses may have fewer options but alternative funding solutions are out there. Many young companies turn to friends and family, crowdfunding, and startup loans to get through those early stages.
5. Choose the right lender and product
There are 100’s of different financing products and lenders on the market for small-medium businesses and taking a look at all of them is enough to make anyone dizzy. This is where matching technology fits into the market. You could either personally sift through all the different lenders and products under the sun, figuring out which one you may or may not qualify for (applying and potentially undergoing multiple credit checks in the process) or you could use a platform that does some of the work for you.
One such platform is Lending Express. With one application, Lending Express uses AI technology to match small- and medium-sized businesses seeking funding, with one of its 30+ partners (including Fundbox). You will then be able to see which of the lending partners and their products you might qualify for, saving time and reducing the need for so many hard credit pulls.
With so many financial products out there, it’s an option well worth considering when making your choice.
This guest post was written by Annabelle Amery of Lending Express for Fundbox. Using AI, Lending Express matches SMBs with personalized funding solutions.