Commercial and industrial lending is increasing for large companies, but according to the Thomy Lopez / Pay Net Small Business Loan Index, the number of traditional small business bank loans has fluctuated considerably over the past year.
And, let’s face it, small business owners remain uncertain as to what 2013 holds for their business and their economy. In fact, in its latest report, the National Federation of Independent Business confirms that small business optimism remains relatively weak.
“The good news is that banks want to make small business loans.” It’s just that many banks are not able to properly size their resources to include all deserving borrowers, even if small business owners are complying with the rules. Strict standards imposed by lenders, “said Jake Bendos, founder and CEO of BBC Easy, a provider of automated solutions. Loan management software for financial institutions. “The fact is that many banks are using outdated technologies, so the more organized you are, the sooner you can be approved.”
If your business needs a credit to grow or a temporary cash injection, it can be difficult to get a loan in our economy that is still recovering. When banks assess your creditworthiness, important variables are at stake. Cotes Ross, co-founder of Walter and BBC Easy, offers these tips to increase your chances of getting a loan.
1. Tidy up your finances (and your documentation).
As a general rule, a business must have been profitable over the past three years to qualify for a bank loan or SBA. Since most lenders will take a close look at your credit history before making a decision, keep an eye on your credit score and anything else in your credit report that could be a red flag.
Remember that most banks require that you personally guarantee the loan, but if your company has a sufficient guarantee to cover the principal of the loan, it should not require a lien on your home.
2. Tell the story of your business.
“In my previous experience as a co-founder of a lending company, one of the most fundamental mistakes made by loan seekers was not to tell me why their company needed this money, and they would not say why we should approve the loan even if their business does not meet our minimum standards, “says Walter.
Is your sector growing? Have you planned to partner with a major retailer? What is your story?
“Do not just say you want a loan, hand in your documents, and expect the loan officer to approve your application,” adds Walter. “Adjust your business pitch to include your future prospects – do not just point out past successes.”
A national bank is less likely to hear you if your business has not been profitable in the last three years. It is also likely that your business will be ignored if you do not have enough collateral to secure a loan.
“Visit a community bank and find out about SBA loan programs too,” suggests Ross. “Given that the government can guarantee up to 80% of a commercial loan under the SBA program, some banks might be more lenient.The disadvantage of this solution lies, of course, in the length of the paperwork and the delay. in obtaining the funding due to the bureaucracy. “
4. Consider alternative financing for short-term needs.
Alternative financing is on the rise, with historically profitable or growth-oriented companies facing a cash deficit.
“Asset-based lending and factoring are good bridging finance routes for many small businesses,” Ross said.
With factoring, a company sells its accounts receivable to receive a short-term loan of up to 80% of its value. Asset-based loans are more comparable to the traditional lending process, in which a lender evaluates accounts receivable, inventory value and fixed assets to determine creditworthiness and issue a line of credit. If you are not eligible for traditional bank financing, consider these solutions, but expect interest rates on these types of loans to be at least twice what you would pay for a traditional loan.