If you are prepared it would be easier to qualify for the loan. So there are a few points below which will help you to get approved for a small-business loan:-
- Having or building a strong credit score
- Having a strong startup plan
- Getting familiar with the requirements and qualifications of the lender
- Gathering legal documents
- Providing collateral
Best way to get small business loan approval:
Step 1: Building a strong credit score
Personal credit score should range between 300 to 850 (higher the better) which makes you eligible for repaying your personal debts such as personal loan, credit card, car loan, housing loan, and mortgage.
The FICO score, which is commonly used for approving lending decisions or approving the loan is mainly based on the following factors. These factors may influence the lender’s decision very well.
- 35% of your score includes your payment history.
- 30% will include the amount of different types of debts you owe and the amount owed on credit cards.
- 10% will include different types of credits in use.
- 10% will include recent credit inquiries
All the small-business loan lenders seek your personal credit score to know how you can handle or manage debts.
If you pay your bills on time it will help you build your score. But sometimes due to error in the credit score report may lower your credit score. According to a study by the Federal Trade Commission in 2012 states that one out of four consumers identified an error in their credit score report.
On the other side, four out of five consumers who filed an error or dispute got their credit score report rectified. Following more study on this content, FTC found 20% of consumers experienced an increase in the credit score after rectifying the errors.
Step 2: Having a strong startup plan
One of the most important points is you should have a strong business plan which should impress or at least satisfy the lenders that you are capable of repaying the debt. They may seek your whole business plan, the purpose of the loan and how you expect it to bring you profit.
You show them that you will have enough cash flow in your business which will help in covering current or ongoing business expenses and the new loan/debts. The more confidently you present your idea you increase your chances for qualifying for the loan.
Step 3: Getting familiar with the requirements and qualifications of the lender
According to this point, you must at least meet up the minimum qualifications or requirements made up by the lender which will make you a stronger applicant. You need to meet up with the minimum criteria related to credit score, annual income, and experience in the ongoing business. Most of the lenders have the habit of exaggerating over past bankruptcies and other delinquencies.
If you are going for loans of U.S. Small Business Administration, you need to take care of the additional SBA loan needs or requirements. These loans are only for small businesses but to qualify you need to meet up with the standard size of SBA. Plus the borrower should be free of any defaults.
Your business can’t be on the SBA’s ineligible business list that is any kind of insurance company and any kind of financial business.
Step 4: Gathering legal documents
Legal documents are needed during the process of loan passing. Many banks and lenders seek a wide range of documents. They can include the following documents:
- A copy of identity proof (driving license, Aadhar card)
- Income tax returns
- Bank statements
- Resume relevant to business experience
However, if you need money faster you can go for online lenders as they can provide the loan with fewer documentation required.
Final: Provide collateral
Most importantly if you need to qualify for any loan you need to provide collateral. Collateral is an asset which can be equipment, property or inventory, which could be seized if you are not able to pay the loan. SBA loans require an adequate amount of collateral for their security.
If you don’t want to take a risk on your personal property or collateral unsecured business loan may be a good option.