If you have decided to apply for a small business loan, you want to ensure that you do everything you can to improve your odds of securing the loan. While the final decision will be up to the lender, there are things that you can do to improve your overall chances of getting your loan approved. Keep reading to learn a few of these tips.
Clean Up Your Personal Credit
Since you are applying for a small business loan, you may not understand why your personal credit would play a role in your loan approval. However, if your business credit is nonexistent or poor, then you are going to need to rely on your personal credit in order to be approved. Depending on the type of loan that you are applying for, you may be required to have a solid personal credit history along with considerable business revenue. Some lenders may not consider your personal credit if you do not have any business credit, but it is always a good idea to clean up your personal credit ahead of time.
Draft a Business Plan
When you apply for a business loan, lenders want to know what you will be using the loan money for. They also want to make sure that you have the ability to repay the loan. The best way to show lenders this information is with a solid business plan. Therefore, before applying for a business loan, make sure to draft a business plan that clearly outlines your cash flow and how your loan payments will be repaid.
Reduce Your Ratio of Debt to Income
On both the personal and business side of things, you will want to work on reducing your overall debt-to-income ratio. This is one of the more common and basic factors that lenders tend to look at. If you have too much debt compared to your income, the lender will take this as a sign that you will have a hard time paying back the loan, significantly lowering your chances of being approved.
Maintain a High Balance in Your Bank Account
You may wonder what the balance in your bank account has to do with being approved for a small business loan, but some lenders will take a look at your daily bank balance as they are going through your documents to approve your loan. Ultimately, lenders want to know what you have plenty of cash on reserve to handle the payments for your loan if it is given to you.
The aforementioned are just a few tips that will help increase your chances of being approved for a small business loan. For more advice, contact a lender in your area, such as MidwestOne Bank.
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