Running a small business can be a great way to earn a living and establish your presence in your community. But for some small companies, obtaining a small business loan (SBA) can be difficult. Some lenders may reject your application if you lack sufficient collateral or the right credit score. Here are things to consider when you apply for your small business loan.
Even if you have a sound business plan or idea in mind, it may not be enough to qualify you for a loan. Many banks and financial institutions may not want to risk loaning money to small companies that lack sufficient assets or collateral. If your business plan fails, an institution may use your collateral to recoup their losses.
If you have some type of asset or collateral in your name, you may consider using it to secure your loan. You can use almost any type of asset as collateral as long as it has enough equity or value to cover your loan. Some institutions require you to have your asset appraised and documented before they accept it, so keep this mind when you apply for your loan.
If you have reservations about using collateral to secure your loan, take other steps to improve your business's credit score.
Improve Your Business Credit Standing
One of the things many lenders look for in small business companies is a good or excellent business credit score. Your business credit score isn't the same thing as your personal credit score. Business credit contains information about your ability to repay your vendors, bills, and debts. If your business income is lower than your expenses, it may affect your business score and chances of obtaining a loan.
Try to obtain copies of your business credit reports and scores from different credit companies. If your reports contain inaccurate information, such as your yearly earnings or company address, correct it right away. You may need to contact the credit companies personally to correct your information. Some credit companies require you to submit proof of the information before they change it on your reports.
Also, work diligently to pay off any late bills you owe to lenders and other entities. Be sure to keep copies of your payments for future use. Some lenders may want to see the proof of payments before they accept your applications.
If you need help obtaining a small business loan for your company, contact a financial institution today.