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Delancey Street is a premier small business lender, based out of NYC, that has helped broker 100's of millions in business loans. They are a pro, at making sure you get all of your financing needs satisfied.
- Over $200 million in funding secured
- Can handle low risk credit
- Handles all industries
- Handles high risk and low risk loans
How to Get Approved for a Small Business Loan
Small business owners seek loans for various reasons, such as keeping the company running during the first critical years of operation, expanding a business, or developing and marketing new products. Small business loans make it possible to improve the company in several ways. However, before applying for this type of loan, there are a few things you should know.
Assessing Your Company’s Finances
Before beginning the loan process, assess the financial state of your company to see if you genuinely require external financing to achieve your goals. It’s essential to identify why you need a small business loan.
If it’s feasible to accomplish these goals without weakening the company’s financial stability, it’s advisable to avoid taking on new debt. However, when it becomes clear that you need funding, consider how many options are available. You can either apply for a small business loan, secure funds from angel investors, explore credit lines, or work with an invoice factoring partner. Weigh their benefits and potential drawbacks to figure out whether a small business loan is the best option.
Conducting Research before Applying for a Loan
Obtaining a small business loan without facing repeated rejections requires researching beforehand. It would help if you started by ordering copies of your organization’s credit reports to identify the rating assigned by each significant credit bureau.
Besides, you should also be aware of all comments made by creditors, both positive and negative, submitted to those bureaus.
Why is this important? Different lenders may pull one, two, or all three credit reports. By knowing what each report contains, you’ll be able to respond to any questions the lender might have regarding your finances.
If your small business has limited credit history, lenders could scrutinize the personal credit score of the owners. Thus, it is paramount to check your personal credit history alongside your business reports. This move will provide helpful information on which lender, among the lot, is most likely to approve your loan application.
Review your credit reports and note any outdated or erroneous information found in them. The significant credit bureaus will remove false or outdated information from the reports if a request for removal or update is made. This will contribute a few points to your score and hopefully enable you to wait for six months or a year to improve your credit rating before applying for financing.
Ensure that personal finances are kept separate from company finances. It’s advisable to establish business accounts under your company’s name only. If the lender wishes to look at both personal and company credit scores, it’ll be more manageable to access the documents.
How to Improve Your Chances Of Loan Approval
If your current personal and company credit scores offer limited options for financing, modify your debt to income ratio by reducing the current debts you hold. A substantial monthly revenue amount going towards debt repayment is disadvantageous.
Your business credit utilization ratio, which is simply the relationship between the amount other creditors have extended to you versus the present balances on those accounts, also contributes to acceptance chances. Experts recommend having this ratio at or below 10%, although lenders will still work with applicants with a ratio of up to 30%.
This indicator demonstrates that 70-90% of the revolving and other credit at your disposal isn’t presently utilized. It signifies your willingness to manage your financial resources efficiently.
Missing payments can significantly hurt your loan approval chances. Lenders prefer credit reports that indicate timely repayment or payment well ahead of the due date. Positive information of this kind affirms that you’re less of a risk and would elevate your approval odds.
It’s preferable to pay more than the minimum due amount whenever possible. Such moves will register positive remarks on potential lenders’ credit reports, highlighting your responsibility in debt management.
If you can, enhance the amount of cash assets the company is holding to increase your chances of approval. These holdings come in handy when pledging collateral for a loan. When pledged assets exceed the amount you wish to borrow, it creates a sense of comfort that reduces the risk of lender non-approval.
Make sure all your company’s tax obligations are settled and any liens imposed on your business are resolved before you pursue a small business loan. If not handled correctly, these types of issues can minimize the odds of approval even as high-risk clients.
Preparing Your Documentation
Lenders require updated documentation confirming your current financial state. Ensure you have all the necessary papers ready.
You need the following:
- Company balance sheets
- Reports reflecting Payables and Receivables
- Credit card statements
- Statements on loans presently open
- Tax records for recently closed periods
- Cash flow statement
While reviewing the documents provided, lenders will seek independent verification of your financial state. Demonstrate transparency using the documents provided such that they match the data collected from other sources.
Secured and Unsecured Loans
Secured loans require security or collateral, while unsecured loans do not. If your credit score is acceptable but near the lower end, receive a secured loan. Higher scores open up options for consideration without any collateral. Carefully consider interest rates, how they apply to the balance, and other conditions available in the loan agreement. The APR is also an important factor to scrutinize when deciding whether it is worth applying with a particular lender.
Small business loans contribute significantly to the function, viability, and ultimate financial stability of your companies. It’s advisable to ensure your finances are in order before approaching any lender. Thus, improving your loan eligibility, approval odds, the best terms, and favorable conditions. With responsible management, you are likely to have several borrowing options when the need arises.
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