What You Should Know About Business Loan Approval Rates
While a business loan may benefit your business, there’s no guarantee you’ll get approved for one. Your financial situation and business history as well as the lender and type of loan you choose will determine if you’ll get approved. Here’s what you should know about business loan approval rates.
Current Business Loan Approval Rates
As the economy begins to recover from the affects of the COVID-19 pandemic, there has been an increase in business loan approval rates.
Compared to last year, major banks, community banks, online lenders, and alternative lenders are approving more loan applicants. This is great news if you require a small business loan in the near future.
If your finances aren’t in the best shape, however, your chances of approval may still be low. Therefore, you may want to improve your business’s financial situation before you apply for funding.
5 Factors That Business Financing Lenders Consider
Every working capital lender is unique, but there are certain factors that most lenders look at when they consider an applicant for a small business loan. Typically, in order to qualify for a loan, you’ll be required to meet the following requirements:
1. Time in Business
Most business lenders want to see that you’ve been in business for at least two years. Usually, companies that have been in business for a longer period of time are more likely to responsibly manage their finances. Therefore, it might be difficult to get approved if you own a startup or new business without a proven track record.
2. Credit Score
The higher your personal and business credit score is, the better. A high credit score signifies that you’re a responsible borrower and more likely to repay your loan. Although there are lenders that don’t require credit checks, you should still review your credit history prior to applying.
3. Business Plan
A business plan is a written document that outlines your short and long term business goals and how you plan to achieve them. It includes information on your products and services, marketing strategy, financial plan, and budget. If you have a detailed business plan, this can help improve your chances of loan approval, because the lender will gain a better understanding of your financial plans.
4. Business Finances
Business loan lenders will likely take a close look at how your business is doing financially. When they review your loan application, they’ll also review your working capital, debts, profits, and revenue.
If you’re a startup or new business, lenders prefer that you have experience in the type of business you plan to run. In the event you don’t have significant experience, they’ll expect you to hire those who do.
How to Get Approved for a Business Loan
Fortunately, there are several strategies that can increase your chances of small business loan approval. They’re important, even when business loan approvals are high.
1. Understand the Requirements
Before you start the business loan application process, make sure you know what the business lender requires. Most lenders state their minimum qualifications and requirements on their website. If you can’t find this information online, don’t hesitate to call or email the financing lender.
2. Gather Required Loan Documents
Banks and traditional lenders will likely ask you to submit a variety of legal and financial documents, such as:
- Personal and business tax returns
- Balance sheets
- Income statements
- Business licenses
- Articles of incorporation
- Financial projections if you own a newer business.
3. Develop a Strong Business Plan
If you already have a business plan, review it to make sure it’s well-written and comprehensive. You may want to work with a professional copywriter if you need to start from scratch and are unsure of how to go about creating one.
4. Check Your Credit History
It’s essential to know where you stand in terms of your credit score before you apply for a small business loan. Due to this, we suggest looking into your business and personal credit score.
If they’re not where you’d like them to be and you don’t need the money right away, work to increase them and apply for a loan later. To increase your credit score, we suggest paying your bills on time and correcting any mistakes on your credit report. By doing this, you can improve your credit scores and increase your chances of loan approval.
5. Review Your Business’s Online Presence
Since some business lenders will review your public information, it’s vital that you and your business have a good online reputation. Take a close look at your website, social media outlets, and review sites. Your goal should be to appear professional and reputable.
6. Evaluate Collateral
Some loans are secured, meaning you have to put up collateral or an asset that you own like a commercial vehicle or piece of equipment. If you default on your business loan, the financing lender will seize it. Figure out what collateral you have, how much it’s worth, and whether you feel comfortable putting it on the line.
7. Do Your Research
Business financing can vary significantly. A merchant cash advance, for example, is much easier to get approved for than an SBA loan. Shop around so you know what your financing options are and only apply for loans that you believe you will get approved for.
8. Time It Right
Ideally, you’d apply for a small business loan during your most profitable months. This way business loan lenders can see that your organization is currently successful and has room to grow. Applying when you’re doing well is particularly important if you’re a seasonal business.
Conclusion: You Can Get Approved for a Small Business Loan
In a perfect world, you’d apply for a loan and get approved right away, no matter your financial situation or business history. The reality is that receiving an approval can be challenging for small business owners, regardless of if if own a startup or growing enterprise.
By following our tips above, you can boost your chances of getting approved for your loan request so you can meet your business goals. If your small business loan application is denied, don’t be afraid to ask the lender why. This can help you make the adjustments you need to receive approval in the future.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.