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Casanova Brooks
Casanova Brooks

Licensed Agent

5 Tips to Improve Your Odds of Getting a Small Business Loan

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To kick start or grow a small business, financial resources are essential, often leading to the need for a small business loan or an MSME loan. If you’re looking up ‘MSME loan apply’, then you’ve found the perfect resource. This guide offers expert insights on how to better your chances of securing a small business loan or enhance your qualifications for an MSME loan.

Achieving loan approval can be tough, especially for entrepreneurs in rural and semi-urban settings who might face more challenges. However, there’s no reason to lose heart. Let’s move forward with five key recommendations that could substantially improve your opportunity to obtain the financial aid your enterprise requires.

Manage Your Credit History

Despite your preference for keeping business and personal financial matters separate, the reality is that your personal credit track record plays a crucial role in how lenders gauge your reliability as a loan applicant; escaping this fact is not an option.

For those concerned about this aspect, it’s beneficial to look into strategies for bolstering your credit score. Based on insights from Credit Sesame, the breakdown of your credit score involves several key components: the history of your payments accounts for 35%, how much of your credit you’re actively using accounts for another 30%, the duration of your credit history contributes 15%, the variety of credit accounts you hold makes up 10%, and the frequency of new credit inquiries also adds up to 10%.

It becomes evident that a significant portion of your credit score revolves around timely bill settlements and prudent credit usage. Adhering to payment schedules and limiting your credit use can incrementally improve your score within months. A realistic expectation is facing challenges in securing a small business loan from traditional banking institutions with a credit score under 660. For optimal results, aiming for a credit score of 720 or more is advisable.

Avoid Requesting Quotes from Multiple Lenders

Collecting loan offers from a variety of financial institutions may seem like a prudent action. Nevertheless, for those whose credit isn’t spotless, the impact of this process on your credit score can outweigh its benefits. This negative impact arises from certain financial institutions performing in-depth checks into your credit history.

Such in-depth checks, known as hard inquiries, directly influence your credit position. Each instance of these thorough investigations can reduce your credit score by approximately 5 points.

This is not to discourage you from seeking various loan offers, but rather to urge caution in your approach. Always verify with lenders whether they will conduct a “Soft Inquiry” which is less impactful, or a “Hard Inquiry” which has greater implications on your credit, before moving forward with their services.

Undergoing a hard inquiry for your credit report isn’t intrinsically detrimental and might be a necessary step during the loan application process. However, it’s the accumulation of multiple hard inquiries that poses a risk. It’s strategic to allow for a hard inquiry only once you’ve made a final decision on which institution you are considering for your loan, to best preserve your credit standing.

Obtain a Summary of Your Credit Score

Being in a seasonal business increases the chance of securing loan offers when you apply during your peak revenue months. Higher income during these times simplifies the process for lenders to approve loan servicing.

The credit score requirements for applying for a small business loan vary among lenders. Typically, banks demand a credit score of at least 675, whereas alternative lending options may accept scores as low as 500. Nevertheless, possessing a lower credit score elevates the risk of rejection.

Upon approval, remember that having a lower credit score can result in less favorable loan amounts and terms compared to those achievable with good or excellent credit ratings. Check this superior tradelines review to learn the potential benefits of adding positive credit history to your report.

Prioritizing your credit score improvement before seeking a small business loan is crucial. While there are numerous approaches to enhance your credit rating, some methods may require more time than others. Elevating your credit score significantly increases your likelihood of obtaining a business loan.

Know the Numbers

Furnish detailed income statements, balance sheets, and statements of cash flows for the previous three years. Remember that banks rely heavily on data; historical financials are key in their risk assessment process, as they use past performance to forecast future outcomes.

The provided documents should thoroughly break down the evolution in the cost of goods sold, gross profit margin, operating expenses, and net income over this period, elucidating what these shifts signify for the company’s path ahead. Delve into the significance and the drivers behind each number and its variations.

Build confidence in your presentation by rehearsing it several times before your company’s accountant. Encourage them to ask challenging questions about the financials to prepare you better. Make sure to consistently highlight during your presentation that seeking this loan involves very minimal risk.

Avoid Seeking Quotes from Several Lenders

Exploring loan options from various financial providers may initially seem strategic. Yet, for individuals whose credit scores aren’t impeccable, pursuing this route could unexpectedly lower their credit rating, outweighing its intended benefits. This situation arises because numerous financial entities might conduct an exhaustive review of your credit history.

These thorough assessments, known as hard inquiries, scrutinize your credit report and potentially reduce your score, with each inquiry shaving off approximately five points. While gathering estimates from multiple sources isn’t discouraged, it’s crucial to proceed with discernment. Prior to engaging with any lender, it’s wise to confirm whether they will conduct a soft or hard credit evaluation.

Encountering one hard inquiry on your credit report can be manageable and sometimes necessary during the loan application phase. The concern, however, lies with incurring several hard inquiries. To preserve your credit health, it’s advisable to limit the number of hard inquiries to just once, specifically after you’ve made an informed decision on your preferred lending institution.

Endnote

No matter the pathway you select, securing approval for a small-business loan is a formidable task. It fundamentally involves tidying up your financial situation to meet the qualification criteria for the required amount. Lenders, whether traditional or alternative, each have their distinct minimum criteria and characteristics that define their value proposition to businesses.

By partnering with a lender that aligns with your business objectives and aspirations, you negate the necessity to “enhance your chances” of approval, as you are collaborating with an institution that is a match for your business’s trajectory.

casanovabrooksCasanova Brooks is a real estate entrepreneur. With a background as a licensed realtor at Berkshire Hathaway and currently serving as a Change Agent at eXp Realty, Casanova brings a wealth of expertise and experience to the table. Beyond real estate transactions, Casanova is a seasoned motivational speaker, author, and podcast host. His book, “Real Estate: Play the Game Like the Winners,” reflects his commitment to sharing insights and strategies for success in the ever-evolving world of real estate. Join him on his journey as he continues to make waves in the world of real estate and beyond.

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