Business Loans

Are Small Business Loans Hard to Get? 8 Factors to Consider

One of the biggest hurdles small businesses face today is access to credit financing. You need a loan to expand your business operations. But the reality is – most mainstream lenders won’t bat an eye until your company gains some momentum.

And that, as you know, takes time. Do you know what would accelerate the process? A loan!

So, you find yourself stuck in a catch-22 situation: You’re ready to scale your business because things are picking up, but lack the capital to do it because, well – no one will give you the money to do it.

This begs the question – Are small business loans hard to get? Here are 8 factors you need to consider.

1. Poor Credit Track Record

Credit reports are one of the tools that lending institutions use to determine a borrower’s eligibility for a business loan. If your credit score is lower than 700, it might be what’s getting in the way of qualifying for credit.

The sweet spot for most lenders is in the ballpark of 720.

2. Not Having a Comprehensive Business Plan

Here’s the thing most business owners don’t realize. Walking into a lender’s office without having a well-documented business plan, complete with projections, and any other relevant financial information significantly reduces your chances of qualifying for a loan.

Without a well-thought-out plan for your business, your chances of getting funding are slim to none.

3. Are Small Business Loans Hard to Get With Insufficient Cash Flow

Cash flow is at the heart of every business. It is a reflection of its health, and it is what lenders use to gauge whether or not you can afford a loan.

To do this, they divide your net operating income by your overall annual debt. This gives them the debt service coverage ratio. Although a value of 1 is acceptable, a ratio of 1.35 gives you a better chance of qualifying for a loan.

4. Limited Paperwork

Before you approach any lending institution for funding, make sure that you have all the necessary documentation at hand. Otherwise, you risk coming across as disorganized and unprepared. This could land your application in the rejected pile.

5. Opening Multiple Loan Applications at a Go

While you might think that applying for loans from multiple lenders is simply covering all your bases, it does the opposite. Credit bureaus view this as a red flag and may tag you as a high-risk borrower.

6. Not Looking in the Right Place

It is often quite difficult for businesses with little to no credit history to access loans from traditional lenders like banks. Consider going another route instead and opt for non-bank lenders and credit unions to access the funding you need.

7. Lack of Expert Knowledge

“Why do you need a loan?” This is a question every lender asks before they can even consider approving you for credit financing.

They want to see that you’ve consulted with experts, to know what kind of capital is most important to business owners in your industry. If you don’t provide a solid reason why you need funding, your application will inevitably be rejected.

8. Having an Apathetic Attitude

At the end of the day, don’t forget that you’re dealing with real people. If you approach lenders with a cavalier and apathetic attitude, it shows that you’re not serious or passionate about your business.

And, you know what that means for your loan prospects. So, exude passion and enthusiasm. Make them believe in your venture as much as you do.

When Preparation Meets Opportunity, Great Things Happen

Are small business loans hard to get? Yes, if you don’t do it the right way. The key to a successful application lies in the preparation.

Use the tips outlined in this guide to get the financing you need and take your business to the next level.

In the meantime, use our online tool to connect you with 70+ non-bank lenders you should consider.

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