Applying for a loan for your business is a lot like going on a first date. You're pretty nervous, a little excited, and totally focused on making the right first impression. From what I hear, chances are you've done a decent amount of research beforehand. You go on the date, ask questions relating to topics you pretend you didn't know before from your Internet search ... only to end the night feeling pretty uncertain about the whole thing.
The small business loan process is eerily similar. It can be time-consuming, expensive, and it's hard to know where you stand. Whether you are gearing up to apply for a loan from a traditional bank, a community bank or an online direct lender like OnDeck, there are some universal truths about how you can put your best foot forward.
1. Do your homework.
- It's important to do some due diligence about whichever lender you want to apply to. Find out everything you can--understand what their minimum criteria is, average application turnaround times, and what types of industries they can and can't work with. Knowing what a lender looks for upfront can save you a lot of time and effort down the road.
And, if you find out a certain lender doesn't provide loans to your type of business, don't despair. In this economic environment, the industry is burgeoning, and there are a lot of choices out there.
2. Presentation matters.
- Organize your application and associated documents ahead of time. Make sure they are easy to read and readily available. This means everything from your tax return to the lease on your storefront, to your bank statements and business credit report.
This step is often half the battle, and extremely important for showing a lender that you're taking the process seriously.
3. Be honest.
- Just like you shouldn't exaggerate how much you love Coldplay just because your date has gone to 12 of their concerts, you also shouldn't exaggerate how much revenue your business is generating or your plans for the future. You should be proud about the success you've accomplished thus far--starting and growing your own business is no easy feat, and being at the point where you need to seek capital to grow generally means you are doing something right.
Lenders will be validating your self-reported data when they are analyzing your application, so it's important that what you say matches up. About 25% of our applicants overstate their revenue, and the technology we use means we see it every single time. Remember, it's always better to be transparent at the outset.
4. Give references a heads up.
- Both traditional banks and direct lenders may want to speak with parties who deal in a meaningful way with your business. This could come in the form of your landlord, your suppliers or even past loan providers. Sometimes people's guards are up when they get strange phone calls, so it's important to let them know beforehand that they might be receiving a phone call if you provide their name as a reference.
5. Practice makes perfect
- Not every first date is going to be perfect, and that's ok. By the same token, not every lender is going approve your business the first time around. In fact, according to a recent survey from Biz2Credit only 20% of small business get approved by traditional lenders, while 63% get approved by alternative lenders these days.
If you happen to get rejected, it's a perfect opportunity to ask the lender why they can't lend to you. It might be things you can't control--like your industry--or it might be things you can control--like your business credit score. Getting that insight is key to improving your lending profile so you can do better next time.
While it's no secret that small business lending is still struggling to reach pre-recession levels, there are still plenty of options available for business owners looking to expand. Even if you've experienced difficulty finding the right lender for your business in the past, it doesn't mean you should give up searching for capital.
By using the tactics above, and helping your lender fall in love with you, you'll be giving yourself the best chance at securing financing.