Business Loans: How to Improve Your Odds Of Being Approved
You might have an incredibly great business idea, but it’s all but worthless if you do not have the funding to back it up. Of course, you can pay for it out of pocket or you can find an investor if you are so lucky. And then there are business loans, which are available for everyone, theoretically, but notoriously hard to acquire. Fortunately, there are some foolproof ways that you can employ to successfully acquire one to help you get your business off the ground. Read on to find out.
During the loan process, many applicants forget the essential elements required to obtain financing. Do not attempt to obtain a business loan or line of credit until you have the following in place:
• An excellent Dun and Bradstreet report on your business without any delinquencies
• Two years’ personal and business tax returns
• A current balance sheet
• At least a 700 FICO score on the principal borrower without recent delinquencies, judgments, tax liens, or other negative information.
It is a great idea to make certain that you are completely prepared for the loan process before you start the application process. Proper planning for a loan is equally—if not more important—than merely preparing an application for financing.
Before applying for a business loan, do know that some lenders are sensitive to possible misrepresentations on your application. The key factor in determining a misrepresentation is the borrower’s intent in the incorrect information provided to the lender. Is this misrepresentation intentional or unintentional? What is the degree of the incorrect information provided? Does the misrepresentation materially alter the application? In other words, would the lender most likely have approved the application anyway, knowing that the misrepresentation was there in advance? Do remember to review all documentation provided before submission to a lender to avoid these problems and possible loan fraud.
In today’s world of business lending, it is clear more than ever that lenders are tightening up on their requirements. Correct selection of a lender for your business is half the battle before submission of the application. Does the lender generally loan money to your type of business? Does the lender specialize in geographical areas nationally or are they a nationwide lender? What is the documentation required by this lender as they vary? What is the timeframe for approval? These are the critical questions which must be determined by you, the borrower before an application is submitted. This enables you to take great care in the selection of the correct lender for your business.
Many borrowers have an overly aggressive attitude about applying to multiple lenders when securing their business financing. It is not necessary to apply to multiple lenders and doing so will decrease your personal FICO scores as each credit inquiry will lower your scores about three to four points. This is even more damaging if they made the same mistake on all applications resulting in a decline from each one! Once this happens, the next lender will see the inquiry and wonder why you have made this many application and why you were not approved; thereby, encouraging them not to approve you either.
It is, therefore, a good idea to be more sensitive about your credit and not apply to more than two lenders at a time to avoid reduction of your credit scores. Once a decision is received, and it is negative, take time to analyze the reason, correct it, and then apply again to another lender. Be advised that, in most cases, once your business is rejected on a business loan, you generally cannot go back and apply again to the same lender for at least six months, and if you do so it is highly probable that you will be rejected again due to the fact that the application has been “red flagged.” It is, therefore, imperative to get it right the first time.
Indeed, the world of business loan financing may seem like a difficult territory to navigate, but it is not at all an uncharted one. With great advice, good attention to detail, and a lot of courage and determination, financing your great, big idea is definitely well within your reach.
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