How To Guarantee Approval For Business Loans

Getting approved for a business loan is not an easy task. There are many requirements to be met whether you are looking for a starting business loan or a running business loan. There are however, many things you can do to boost your chances of getting approved for a business loan and at the same time obtaining the best loan conditions available.

Understanding the requirements for loan approval and other additional variables that you can alter in order to increase your possibilities of getting approved is essential. Also, the difference between secured and unsecured business loans is not a mere distinction and can determine your ability to obtain finance for your company among other things.

Requirements For Loan Approval

In order to get approved for a business loan you need to show a clean credit report. If you are planning to start a new business, you personal credit score has to be in a good stance. If you need finance for your running business, your company’s credit score will be analyzed. It is always possible to act as a guarantor of your company’s loan and thus your personal credit score will be taken into account as well.

As regards to income, either your budget or your company’s budget need to be able to afford the monthly payments with comfort. This means that the loan payments must not exceed (in most cases) 30% of the overall income of your company or yours if you are starting a business.

Avoiding Delinquencies

The best thing you can do to ensure qualification for a loan is to avoid having delinquencies from being recorded into your credit report. The easiest way is of course to pay everything on time, without missing payments or paying late. However, if that is not possible for any reason, you should not let time go by without taking care of those stains.

You can always negotiate with lenders and them reporting your delinquencies or not can be part of the negotiations. Also, if they have been already recorded you can always make them rectify the situation by offering to pay or negotiate part or your whole debt. In any case, if a stain remains on your credit report the only thing than can erase it is the passing of time.

Providing Collateral

Providing collateral does always reduce the risk of a financial transaction and thus increases your chances of getting approved for a business loan. Basically, collateral implies that the lender will recover his money one way or another and thus, gives him confidence to lend money to an otherwise risky applicant.

There are many things that can be used as collateral of a business loan. You can use business assets or personal assets too. Real estate are the most common assets used to guarantee a loan. However, business loans are more flexible on this matter and can be backed up with the company’s earnings, equipment, non real estate assets like the company’s discoveries, developments, designs, etc. Anything of certain value can be used as collateral for commercial loans and lenders are very used to these kinds of transactions.

Seasonal Business Line of Credit

While many businesses operate year-round some only do business based on a specific season. A seasonal business is a term that refers to the fluctuations in a business that is based on the changes in the season. Some examples include owners of a lawn care service, snow removal service, or vacation cottage. Some businesses may close down entirely during the off-season and only manage the basic services to run the company.

If you operate this type of business, financing can be a challenge because some lenders will not grant funds to businesses that are seasonal. Banks consider seasonal businesses a high risk and they will often deny credit simply because you operate a seasonal business. A seasonal business line of credit is a line of credit that is specifically designed to cater to seasonal businesses. A lender offering this type of credit line understands the risk involved but also realizes the fluctuation associated with a seasonal business. Lenders offering a short-term seasonal business line of credit can provide your business with the financing it needs to operate in the upcoming season. For example, a landscaping company needs to stock its inventory by purchasing trees, shrubs, and plants for the upcoming spring and summer season.

With a short-term line of credit it can purchase the inventory it needs. As the business sells its inventory during the season, the business will have the cash flow needed to repay the advance against the line of credit. In a nutshell, your business is using the inventory purchased from the line of credit to pay for itself as well as generate a profit for the business. Since this is a short-term payback your business also avoids accumulating long-term debt and avoiding the costly interest payments over time. A seasonal line of credit can be secured or unsecured depending on the lender’s requirements.

While most business owners prefer an unsecured line of credit, banks tend to prefer some form of collateral to secure the line. Where loans can be secured by the assets they are used to purchase, a seasonal line of credit acts like a large credit card with no limitations as to what the funds can be used for. However, unlike a credit card a seasonal line of credit must be paid back in a much shorter time period usually 6 to 12 months.

Before you apply for a seasonal line of credit do your homework and research all the types that are available. Whether you have bad credit, a seasonal business, collateral, or strong financials, there may be a specific type of credit line that is better suited to fit your needs and that of your business.

SBA Loans

SBA loans - 7A government small business loans

SBA loans or government small business loans offer a wide variety of loan guarantee programs to fund small businesses that can't otherwise qualify for loans on reasonable terms.

Commercial lenders make the loans and the SBA guarantees them because the SBA has no funds for direct lending or grants.

SBA loans (government small business loans) have two important points:

1) There is no limit on the amount of capital that can be requested.

2) SBA loans 7(a) have a maximum maturity term typically of 25 years.

To qualify, you should meet these criteria: You must have a stake in the business. The theory is if you have put your own money into your venture, then you are much more likely to push harder for the success of your business.

You should have a strong business plan showing the detailed plans on how your business can make money. How will you be able to repay the loan and does your business earn enough to cover the monthly payments.

You need a good personal credit rating. The borrower's track record in paying their bills will form an important component in the loan application process.