It’s hard to believe, but in the next 30 days, 543,000 new small businesses will open in the U.S. They’re the lifeblood of the American economy, providing 65% of all the new jobs created since 1965. But what’s supporting those businesses? Many small businesses choose to take out commercial business loans. About 38% do so to maintain inventory, and 23% because of poor or slow sales.
Applying for a business loan and actually getting one are two totally different matters, though. Small business loans can be challenging to secure, especially for businesses with few assets or a vague business plan. If you’re submitting a business loan application, it is critically important for you to understand the basis on which loans are given. So what will decide whether you’re granted a small business loan? The Small Business Association has a few suggestions.
There are three major factors taken into consideration for commercial business loans:
- Ability to repay. You need sufficient assets, reserves, and personal collateral to make it through business fluctuations and still be current on loan payments.
- Solid cash flow. If you’re an existing business owner, you’ll have to prove that you can repay the loan with record of past success.
- Profitable track record. If you’re a new business, you’ll need to demonstrate a track record or success in a similar endeavor
Commercial business loans are extended to those who can show solid business plans, good personal and business credit, and a little expert help. Before you apply, take care of those areas with this path to preparation:
- Build a business plan. The SBA has a tool for building one online that walks you through the essential elements.
- Straighten out your credit score. Know what it is so there aren’t any surprises, and do what you can to improve it.
- Talk with an expert. There are plenty of small business groups that can help you through the process of applying for a loan.
Ultimately, showing that you’re a good candidate is about demonstrating that you’re a reliable risk. Put yourself in the lender’s position and do your best to assess yourself objectively. If you can manage that, you’re in a good position to fill in the blanks and submit a solid business loan application. Continue your research here.