Business loans can be essential to launching a startup or expanding an existing company, with funds often used to secure inventory, purchase equipment, rent operational space, hire employees or cover a host of other expenses. However, business loans can be difficult for new companies to get.
Before applying for a business loan, make sure your financial documents are in order and that you understand what lenders need from you. A good business plan makes your business attractive to lenders, giving you a better chance of getting a loan.
Are you having trouble getting approved for a Start Up loan? Be aware of these six roadblocks that can keep you from getting approved for a small business loan.
1. Poor credit history
Credit reports are one of the tools lenders use to determine a borrower’s credibility. If your credit report shows a lack of past diligence in paying back debts, you might be rejected for a loan.
It is difficult to qualify for a small business loan with a credit score lower than 700, so if your score is under 700, it is recommended that you focus on fixing it if you can. Begin by checking your personal and business credit scores to ensure they are accurate. If you find any errors, correct them before beginning the loan application process. You can order a free personal credit report yearly from each of the three credit-reporting companies on AnnualCreditReport.com or individually from each credit-reporting agency – TransUnion, Equifax and Experian. To check your business credit score, contact Equifax, Experian and Dun & Bradstreet.
Additionally, you should build a strong personal credit score and drive down any debt prior to applying for a business loan.
2. Limited cash flow
Cash flow – a measure of how much cash you have on hand to pay back a loan – is usually the first thing lenders look at when gauging the health of your business. Insufficient cash flow is a flaw that most lenders can’t afford to overlook. Therefore, it’s the first thing you should consider to determine if you can afford a loan.
One of the preventative measures recommended is to calculate your cash flow at least quarterly. If you take that step, you may be able to optimize your cash flow before approaching potential lenders.
To figure out how large of a loan payment you can afford, divide your net operating income by your total annual debt to calculate your debt service coverage ratio. You will have a ratio of 1 if your cash flow is equal to your monthly loan payments. Though a ratio of 1 is acceptable, lenders prefer a ratio of 1.35, which demonstrates you have a buffer built into your finances.
3. Lack of a solid business plan
Having a plan and sticking to it is much more attractive than spontaneity in the finance world. It also gives you a better chance of getting a business loan.
It isn’t uncommon for very small businesses not to have a formal business plan – or any plan at all – but you’ll still need to put in the time and work to develop a comprehensive business plan before ever walking into a lender’s office.
A standard business plan includes a summary of your company, market, products and financials. If you’re not sure your plan is persuasive enough to sway the lender, consider seeking the advice of a business plan expert who can review it and offer feedback. You should also be prepared to explain how you plan to use the money you want to borrow.
4. Too many loan applications
Some business owners assume they can cover all their bases by applying for multiple loans at one time. This way, they can pick and choose from a range of potential offers. However, opening too many loan applications at once can be a red flag for credit bureaus.
Before approaching potential lenders, business owners should have their act together. That means having all the paperwork necessary for your loan application on hand.
Obligatory documentation often includes a detailed business plan and proof of collateral; extensive financial records such as income tax returns, personal and business bank statements, loan history, and a balance sheet; and legal paperwork, such as franchise agreements, business licenses and registrations.
There are many resources that business owners can refer to when putting together their loan applications. The Small Business Administration, for example, provides a highly detailed loan application checklist for borrowers. Using these resources decreases your likelihood of coming across as disorganized or unprepared.
6. Failure to seek expert advice
When you apply for a business loan, lenders want to see that you’ve sought guidance from knowledgeable advisors. Fortunately, Unsecured Finances has the knowledge and experience to help guide you through the process. We work with start ups to identify the any opportunities for making their start up look more appealing to lenders.
Invest in Your Business
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Financial restraints have been a complaint for many of the dreamers, limiting themselves to their immediate funds. There is an alternative. If you have the dreams and decent credit, Small Business Loans and No Doc Loans are available to you. Our goal is to provide you with the knowledge you need and the resources available to make your dream a reality. Give us a call – we have the education and the perspective to help you obtain the loans you need for your small business. Visit our website or give us a call to find out what financial backing is available to make your business soar!
Unsecured Finances has over 10 years in the consulting business! We specialized in educating and assisting clients on acquiring Unsecured Business Loans and Start-Up Business Specialty Loans including; Unsecured No Documentation (No-Doc Stated Income) Loans, Unsecured Business Loans, and Unsecured Start-Up Business Loans and Lines of Credit from $10,000 to $500,000 without Assets.
Apply on our website to find out if you qualify, or call today for a free consultation: 1-888-294-2584