Though qualifying for a small business loan may feel like a monumental task, the fact is, lenders want to fund your business. This is their business. Their job is to sift through the many potential applicants and find the ones that show the best signs of potential success. If you are able to convince the lenders that you are a trustworthy, competent entrepreneur who will, with a little support, be able to give them a return on their investment in you, then you will be approved. So what are lenders looking for?
A High Credit Score
The very best thing you can show them is a high personal credit score. This is true even if you are applying for a business loan for a corporation which is completely separate from your own finances. A personal credit score of 700 or over will demonstrate a history of financial responsibility which will go a long way in helping establish a lenders trust.
You are able to access your own credit report for free once a year. Order a copy of this before you apply for your small business loan. If you have a corporation, also make sure you order a copy of your business credit report as well. Carefully comb over your report to search for any errors which you can challenge. If there are any one time incidents which negatively affect your scores, a well written letter of explanation can go a long ways in assuring potential creditors that the problem has been addressed and will not happen again.
Find a Co-Signer
If your credit is not stellar, try to find a co-signor who does have a high credit score who is willing to back you up. Often, family members are among those most willing to step into this role. Be aware that, if you have not incorporated your business, in the chance that the business does fail, your cosigner will be financially responsible. Getting an acknowledgement from both parties of this reality in writing is critical.
If you can show a lender that you are willing to put your own money on the line, they will be more likely to do so as well. Secured small business loans also have the benefit of having typically lower interest rates and longer repayment terms. If you do not have capital or other assets to pledge as collateral, most lenders will accept your 401k as collateral.