Despite the many rewards of running a small business, acquiring sufficient funding can be a significant roadblock. Entrepreneurs need resources to get their ideas, but securing capital by getting a small business loan can be challenging.
“Securing funding for a small business can be one of the greatest challenges for an entrepreneur. Without adequate capital, even the most innovative and promising business ideas can wither and die before they can take root and grow,” says Shane Perry, a small business loan provider at Max Funding.
Small business loans play a critical role in the growth and success of small businesses worldwide. By providing access to vital funds, small business loans enable entrepreneurs to start their businesses. They can also help expand their operations, hire more employees, and invest in their communities.
Know and Improve Your Credit Score
When applying for a small business loan, your credit score can make all the difference. It’s important to understand that lenders rely heavily on this numerical representation of your creditworthiness in their decision-making process. Before you start the application process, obtain your credit score through one of the three major credit bureaus.
Once you understand where you currently stand, take proactive steps to improve your credit score by paying bills on time. Also be sure to keep credit card balances low, and disputing errors on your report. By prioritizing your credit score, you can increase your chances of securing the funding you need to grow your business.
Prepare a Strong Business Plan
A well-crafted business plan can significantly enhance your chances of getting the financing you need to grow your business. Not only does your business plan provide valuable insights into the viability of your business, but it also showcases your ability to think strategically and plan for success.
When creating your business plan, you must include critical elements such as financial planning and projections, a market analysis, and a clear understanding of your target market. You can also increase your plan’s appeal by keeping it concise and visually appealing. Be sure to include relevant business data supporting your claims and demonstrating your passion for your business.
Build a Strong Relationship With Your Lender
With a strong connection, you’ll be in a better position to secure the funding you need to succeed. Not only does it increase your chances of getting approved for financing, but it also lays the foundation for a positive long-term partnership. To establish this relationship, showing your lender that you are trustworthy and responsible is essential.
Communication is vital, so keep your lender updated on your business’s progress and any changes in your financial situation. To maintain a positive relationship, always pay your bills on time. Also be sure to be transparent about any issues, and show appreciation for your lender’s support
Have Collateral or a Co-Signer
There may be better solutions than having collateral or a co-signer. However, it can increase your chances of having your loan application approved. A survey conducted by Small Business Credit in 2019 found that 52% of small business owners were required to provide collateral for a loan.
Having either of these options is beneficial for lenders. This is true as it can reduce the risk of losing money if you default on your loan. Some examples of collateral include real estate, equipment, and a vehicle, whereas a co-signer could be a trusted family member or friend with a strong credit history.
Consider Alternative Lending Options
Exploring alternative lending options may improve your odds of securing a small business loan. These options include peer-to-peer lending, crowdfunding, merchant cash advance, and online loans. Each option has advantages and disadvantages, so assessing which one works best for your business needs is essential.
For instance, peer-to-peer lending allows you to borrow from individual investors, while crowdfunding uses a platform to pool funds from multiple individuals. Meanwhile, a merchant cash advance will enable you to borrow against future credit card sales.
Online loans provide quick access to funds but typically have higher interest rates. Before deciding on an alternative lending option, it is essential to do your research and assess your business’s financial needs.