Expert Tips for Getting a Small Business Bank Loan:
- Be thoughtful about how much debt your business can actually afford
- Check and correct your own personal credit
- Have a specific purpose that is easy to explain to potential lenders
- Report ALL of your income on your taxes
- Get a small amount of credit with a business credit card
A lot of small business owners feel like getting a bank loan is easier said than done. Some embark on the journey with optimism, but quickly become jaded by the requirements and formalities that clutter the process. Many are simply unaware of the preparation necessary to ensure success.
Below are tips from five industry experts on how to secure the loan that you need to grow your business.
“Think carefully about how much you want to borrow, and how much debt your business can support, rather than just asking for the maximum amount,” said Trevor Dryer, co-founder of a small business lending platform. “People who spend time thinking through this (whether applying online or in person) tend to be lower credit risk, and lenders know this.”
Establish Your Creditworthiness
“Potential lenders will look at your personal credit history if you are planning to get a business loan. Make sure your credit history is solid and that you’ve paid your taxes. You can get a free copy of your credit report from each credit bureau once a year through the government-sponsored website www.annualcreditreport.com. Be sure to check and correct any errors before applying,” said Brian Smith, head of SBA lending at a large national bank.
Be prepared to explain to potential lenders how a loan will impact your business, both in the short term and long term, said Clay Thompson, chief lending officer of a federal credit union. “Many times, business owners come in with a blanket request for an amount. When asked what the funds will be used for, the response is something as general as, ‘growing my business.’ It helps lenders when you have a designated purpose (e.g., to purchase specific machinery or to expand into an area of service).”
Report Your Income
David Waring, managing partner of an SBA lending company, shared, “My No. 1 tip for getting a bank loan is to make sure you report all your income when filing your taxes. If it’s not on your tax return, as far as the bank is concerned, it does not exist. Your income as reported on your tax returns is the top factor that banks are going to look at when deciding whether or not you can pay back the loan. If you don’t have enough income reported, you aren’t going to get it.”
“One of the most important steps is obtaining small business credit separate from your own. The easiest way to do this is by getting a business credit card,” commented Alex Gerard, CEO of a credit card comparison service. “Business credit cards for a small business are usually backed by the owner’s personal credit. They will help you achieve multiple goals in one shot like tracking business expenses for tax, accounting, and planning while earning business-specific rewards like cash back on office supplies, gas, or business travel.”
By keeping these tips in mind from experts across the business finance industry, you are sure to enter the process more prepared and more likely to achieve a successful outcome!