Is Your Business Too Risky for a Small Business Loan?
You have your heart dead set on a business concept, but your lender thinks it is too risky to invest. What do you do? Before you throw in the towel or settle for subpar funding options, think of ways you can position yourself better and get approved for small business loans.
Choose the Right Business
Some business types are inherently seen as risky, so lenders tend not to favor them. Consider your business structure, location, product or services and legal business identification code. Do research on your business type and find ways to decrease the perception of risk.
Monitor Your Credit Score
Creditworthiness is a primary factor for determining your lending options. Keep track of your score, make payments on time and pay down debt to increase your rating. Most small business loans require high credit scores as proof of financial responsibility. Monitor your monthly reports and dispute any errors that can damage your rating.
The more money you make, the more faith lenders will have in your ability to pay back your loan. Focus on developing a successful business for your own personal gain and to show lenders you are worthy of financing.
Decrease Overall Debt
Debt is not always bad, but too much debt can deter lenders from offering you more money. If you already have substantial debt, create a debt management plan to pay down balances and be willing to show proof of payments.
Consider Your Collateral
Collateral refers to the assets you use to secure small business loans. This can include real estate, accounts receivables, equipment and inventory. If you have no collateral for the lender to confiscate in the event you default on loan, then you may not get the type of funding you need.
Create a Solid Business Plan
Plenty of lenders tailor their funding programs to small businesses, but they do not simply hand out money and hope you succeed. Lenders need solid proof that you have a legitimate business that will earn a profit. Show lenders you are a serious professional and in business for the long-haul by developing a strong business plan that outlines your current assets, products and services, operational strategy and financial plan.
Aim for Success
When you work on building a successful business, lenders are more likely to approve you for small business loans. To guarantee financing, you do not have to make millions of dollars, but you do need to prove that you have a profitable business and responsible financial behavior.