Improve your success rate when seeking a small business loan
What can you do to get your application approved?
Small business loans are crucial to SMEs looking to grow. It’s this essential finance that can help a small business develop into a more substantial enterprise – or just get operations up and running in the first place. With thousands of entrepreneurs looking for financial support every day, lenders can be tough when it comes to application approvals. Often, if it’s feasible, entrepreneurs will consider the different types of personal loans available to them rather than seeking business funding; or, alternatively, seek a guarantor and take out guarantor loans or other types of secured loans. So, what else can you do to improve your success rate?
Review failed applications
It makes a lot of sense to start with the applications that you’ve already made and try to work out from there what has gone wrong. There could be many different factors that have influenced the failure of a small business loan application, including:
- A poor credit score on the part of the business owner
- A lack of evidence of cashflow
- Slow or no growth in the business so far
- Evidence that the business is not well organised
- No clear purpose in terms of what the cash is for
- Inaccurate financial projections that don’t really make sense
- Paperwork that is full of mistakes or not very credible
It’s often worth contacting any previous lenders you have made applications to and asking for feedback about why the application was rejected. It might be difficult to hear at first but it will give you a starting point when it comes to working out how to improve your success rate next time around.
Wait a little while before making more applications
If you’ve gone through a period of rejection then it makes sense to wait before sending off any more applications for a number of reasons:
- Applications for small business loans usually generate a hard search against your own credit score. Too many of these in a short space of time could drive your credit score down.
- It doesn’t make sense to send off the same paperwork. Avoid a tight turnaround when it comes to applying for one loan after another has failed. Although all lenders are different, if there are fundamental flaws in your paperwork you’re unlikely to get a different response from the next lender. Give yourself the time to review and amend what you’re working with.
- Get better organised. Disorganisation is a major factor in application rejections. You may think you have a genius idea (and maybe you do) but lenders are not like investors who can get swept up in your vision. Lenders deal in hard facts and figures and that means organised numbers, solid business infrastructure and documents that make sense. If you don’t currently have this then give yourself the chance to get organised before you apply again.
Make a plan for the next round
A big part of successful business is evolution. Almost every big brand out there failed at first but the defining moment came when the entrepreneur at the heart of the business took failures on board and then made revisions based on those failures. So, if you want to improve your small business loan application success rate, start with a comprehensive and detailed plan for how to overcome the failures that slowed you down this time next time around.