During times of crises and economic downturns, small business owners must be able to creatively adapt to keep business running as smoothly as possible. One option is to apply for a low-interest business loan to stay afloat. But how hard is it to get a small business loan? And what if your financial history is less than stellar? Do small business loans and bad credit even make a viable match? With immediacy in mind, here are some steps small business owners can take to achieve their best possible credit score quickly and increase their chances of getting approved for a great loan.
Establish a Business Plan
While every lender has their own set of requirements for prospective borrowers, it’s likely they will all want to know how you plan to use the money you borrow. In addition to detailing the purpose of the loan, you should be prepared to include current and projected financials to demonstrate how you intend to pay back the loan, which will increase your chances of approval. Even if they don’t ask for this plan, establishing one before you borrow will help keep you on track to use the funds wisely.
Prepare Your Financial Documents
Being approved for a small business loan relies on proving your ability to pay back the loan. Be prepared to share your financial history — the good and the bad — with lenders, which will help back up your assertions on how reliable you are. Farhan Ahmad, founder and CEO of Bento for Business, tells Business.com that prospective borrowers should bring the following documents with them when filling out an application: Employer Identification Number (EIN), business permits and licenses, personal and business tax returns for the past three years, any bankruptcies or bounced checks, personal and business credit scores, annual profit and revenue, statement of disclosure of debt, copies of commercial leases, and personal and business bank statements. Keep in mind that some lenders may ask for even more documentation. “Generally speaking, low-cost, long-term loans have more paperwork than high-cost, short-term ones,” Ahmad warns.
Many traditional lenders require collateral with a small business loan, which may consist of real estate, inventory, or equipment. Collateral could be seized and sold by the lender if you fail to make your payments down the line. If you’re applying for an SBA loan, a small business loan that is partially guaranteed by the government (Small Business Administration), a personal guarantee will also be required from every owner of 20 percent or more of the business.
Build Credit Score With ScoreMaster
According to a Nav survey of 250 small and midsize business owners, the primary reason small businesses could not obtain bank loans was a failure to understand their business credit score. With 45 percent of entrepreneurs not even knowing they had a business credit score, and 72 percent not knowing where to find information about it, it’s imperative that prospective borrowers have access to education around their credit history as well as actionable steps to achieve their best score yet.
ScoreMaster is designed to help borrowers achieve their best credit score in just 20 days, which is crucial for small business owners who need immediate help to keep their operations running. To get approved for a small business loan, lenders will be looking at both the business credit score and the business owner’s personal credit score and ScoreMaster provides the tools and education to make you a more attractive loan candidate. Using a gamified dashboard that displays potential score increases and decreases based on spending and debt repayment, ScoreMaster helps prospective borrowers stay on track to improve their financial health. The platform also uses an open collaboration feature, which binds borrowers and lenders to a devised plan for better-quality loans based on one’s goal credit score.
Business owners should be wary of high-interest loans from alternative lenders who prey on businesses with bad credit. While no one knows how long economic downturns and crises last, it’s best to compare lenders and work toward securing a low-interest loan from a trusted lender instead of rushing into something that will cost you more in the long run.
Learn more about how ScoreMaster can help you achieve your best credit score and get approved for a low-interest loan quickly.
*Legal Disclaimer – ScoreMaster is a patent-pending educational feature simulating credit utilization’s effect on credit scores via payments or spending. Your results may vary and are not guaranteed.