Challenges You Might Face When Applying for a Small Business Loan
These past several years have taught the world about resilience. Yet, no one knows the real definition of rolling with the punches like small business owners.
If you are feeling like you do not have any resilience left, you might be looking for ways to access capital to keep your business afloat. If you are opting to apply for a SBA loan or other commercial financing, then make sure you are not making these mistakes during the application process. Read on to learn more.
1. You Do Not Have a Clear Business Plan for How You Will Use the Loan
When applying for a traditional business loan, the lender wants to know how you are going to use the money to grow or improve your business. You cannot just tell them, “We are going to keep doing what we are doing,” and expect to get the funding.
Your business plan for your loan application needs to detail how the money is going to solve issues your business is having right now and make it better than ever. If your plan is to purchase new equipment or upgrade your base of experience by hiring new employees, then you need to make that clear. Demonstrate how these changes will have a positive financial impact on your business. Why does the lender want this information?
They want to know that you will be positioning your business financially so that it can pay back the loan in a timely manner. If you cannot outline a solid plan, your lender might be less willing to work with you, because they are not sure how your business will benefit from their funding.
The right business consultant or lender will help walk you through what they need to see to approve of you. Listen, take notes, and craft your business plan to answer their questions and address any possible concerns they may have.
At the very least, your plan will need to include:
- The exact amount you need
- Profit projections
- Current financial information
- A detailed list of what the funds are for, broken down by item
2. Applying With the Wrong Lenders
All lenders are not created equal. The big bank names will be less likely to work with you and harder to get in contact with, especially when you have questions throughout the application process. They are also less likely to be flexible on smaller things that may make you ineligible for their loan program.
When you apply to a specialized lender, who can also offer commercial and small business loans, you are going to get a more personalized experience. They will be more likely to work with you on smaller things or tell you what else they need to see to help get your loan pushed through. Also, these lenders are available to answer questions and assist you in finding the right financing solution to fit your current needs.
That does not mean they will approve everyone, but they will treat you like a person – not just an application number.
3. Applying for Multiple Loans at Once
Some business owners think that they will increase their chances of finding funding if they apply with multiple lenders at the same time. The truth is that doing so can mean multiple hard hits on your business credit report, which could negatively impact your score.
While it is good to shop around when it comes to things like interest rates, you should only apply to one or two lenders at once. Otherwise, it is a red flag to the lenders themselves, and it can ding your business’s credit score – which will make it even harder to get a loan! Often, you can get a clear idea of whether your business will qualify for financing before they can even pull your business credit report.
Therefore, you can get avoid the negative impact on your credit report by limiting the number of pulls done by different lenders. Ask questions and get to know the options before you start the application process with one specific lender.
4. Not Working With a Small Business Expert
This falls under finding the right lender – but you could find a lender you liked on the surface, just to find out they do not have experience with the type of business you run.
Take the time to review the different businesses that they have worked with to determine if they would be knowledgeable about your business or industry. That being said, checking with your local business network can also be a way to find the lenders who know your industry best.
Also, take the time to ask lenders who they have worked with in the past. You might ask a few questions specific to your industry’s financial needs to determine if they are up to speed and can effectively care for your unique requirements.
Overcoming the Challenges of Getting a Small Business Loan
The right lender can make all the difference when it comes to applying for a small business loan. It is the difference between pulling your hair out every step of the way and making a relationship with someone who believes in your business. Finding the right fit for your business can take some time, but in the end, the work will be worth it.
If you take the time to clearly outline what your business needs in your business plan and then shop around before you start the application process, then you can put yourself in the position to get the right loan to fit the needs of your business right now, without putting it in financial risk in the future.
To learn more about our loan options for small businesses, contact us today.