How to get approved for Business Loans

Introduction:

Running a successful small business can be extremely difficult, and being able to secure a business loan can often be the difference in your business growing or not. There are several factors that commercial underwriters consider when deciding whether to take risk on your business loan or not. In this article we will touch on what things they look for and on what things you can do to give yourself the best shot at an approval on your next business loan application!

What do underwriters look for?

For a typical small business loan of $250,000 or less, underwriters will consider a few key factors when deciding whether or not to approve your business loan request. Some of these items are as follows:

1. How long has your business been registered for?

If you have been operating a business successfully for multiple years you pose a much lower risk to a lender than if you are just starting out. According to the Bureau of Labor Statistics, approximately 45% of businesses fail in their first 5 years. That means, if a business loan lender gives business loans to 100 small businesses and the typical loan term is 5 years, then they can expect that about 45 out of those 100 businesses will not even be in business long enough to pay their loans off, yikes! Many lenders still have business loan programs for newer businesses though, but the longer you can prove your business has been operating the better!

2. What condition is your personal credit in?

When you are a new or recently established business, chances are you will have little to no commercial credit history established. That means for a business loan underwriter to decide whether they believe you are likely to pay your business loan back they have to look at your personal credit history. Underwriters are rarely looking at just the credit score, but instead are focusing on the loans you may have had that are similar in size and structure to the type of business loan you are requesting now.

For example, if you are trying to get a business loan for equipment, they would look at things like auto loans or large collateralized loans you may have had and how well or not you paid on those. If you are trying to get a business loan for working capital, they may be more interested in any unsecured loans you have had. Things like credit cards or lines of credit, and how well those were paid back.

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3. What does your businesses cash flow situation look like?

For loans under about $250,000 the most common way for business loan underwriters to gauge how healthy your business is financially is by collecting a few of your most recent months business bank statements. These statements give them a peek into the day to day movement of your cash flow. Some of the most important things they are looking for on the bank statements are how much are you depositing through your account on average each month, what is your daily average balance, do you have multiple deposits each month or just a few, and do you have multiple Non Sufficient Funds charges?

The better these metrics look, the more your bank statements can serve as a means to bridge any gaps you may have regarding how long you’ve been in business or dings you may have on your credit.

Tips to Know Before Applying for a Business Loan

1. Not all lenders or business loan companies are created equal. Many lenders specialize in certain credit or even industry types. Some lenders specialize in working with well established, strong credit businesses only. While others may have more experience helping businesses with less time in business and tougher credit.

2. If you operate a business that has lots of cash transactions it tends to be common practice to not deposit that cash through your business bank account. However, this can be a double sided coin when you go to apply for a business loan as your bank balances will not be an accurate reflection of your businesses financial situation. If you know you are going to apply for a business loan in the next 3-6 months it is worth considering running your cash through your business bank account so that your finances look as strong as possible when your business loan source requests your business bank statements.

3. As mentioned above, the amount of time you have been in business is one of the key factors that is considered when the underwriters looks at your business loan application. But, for many small business owners they may have years of industry experience or even operated a business without being registered, thus robbing themselves of the credit for that time in business. However, some business loan sources like Ryzen Capital (*wink ) have creative ways to help you get back that lost credit through things like certain tax forms, online history or presence, write ups and references, etc.

Conclusion

Working with a business loan source that has experience with lending to businesses in similar circumstances to yours will greatly improve the odds you are approved, and that the approval you get will likely be the best possible for your situation. Traditional banks and credit unions are typically considered general lenders and rarely have specialized experience with business loans for small businesses as they tend to focus on consumer loans or very well established businesses with deep pockets and years of business credit history.

Ryzen Capital specializes in working with small businesses of all credit and time in business situations and is widely considered one of the best options in the country for heavy equipment business loans and working capital business loans.