How to Obtain a Small Business Loan

Whether you’ve been in business for a while or you’re thinking about launching a new business and need a loan, the best way to jumpstart the process is by making sure you understand what’s involved. Being prepared will increase the likelihood of getting a loan approved. Sometimes a small business loan is what you need to cultivate growth and take your business to the next level, so you might as well give it all you’ve got. The information below will take some of the angst out of the process by helping you understand what you can expect when seeking small business loans in Denver.

Improving Your Personal and Business Credit Scores

If you’ve ever heard of AnnualCreditReport.com, then you probably know that they provide a free copy of your credit report annually. This is beneficial because your credit score is what will be used as part of the decision making process when lenders review your application. Also known as a FICO score, credit scores range from 300 to 850 and anything higher than 700 is typically considered good.

Your score is determined based on information provided by three credit bureaus (Equifax, Experian and TransUnion). The credit score for your business will have a range between 0 and 100, which is obtained through Experian, Equifax and Dun & Bradstreet. You’ll want to get a copy of your credit report because it’s not uncommon for errors to exist and they can be addressed.

The Federal Trade Commission (FTC) has reported that 20 percent of consumers experienced an increase in their credit score after disputing errors. You’ll want your score to be as high as possible, especially since the US Small Business Administration (SBA) and some other lending institutions that provide small business loans in Denver require excellent credit.

Understanding the Lender’s Requirements

In order to become a strong applicant, you’ll need to understand the lender’s requirements. While some lenders are flexible, in order to maximize your chance of receiving a loan, you want to either meet or exceed all of the minimum requirements. For example, most lenders have requirements that are related to your annual revenue, credit score and the number of years you’ve been in business.

Many lenders have requirements related to the nature of your business, payment delinquencies and more serious issues like bankruptcies. For example, the SBA will not fund loans for nonprofit organizations, nor will they fund loans for financial businesses or life insurance companies.

Providing Requested Documentation

As part of the lending process, you’ll need to provide a variety of documentation, such as Articles of Incorporation, commercial leases, business licenses, bank statements, driver’s license, income statement, balance sheet, tax returns and your resume to demonstrate your business and management experience. There are some online lenders that have streamlined the process and don’t’ require you to provide as much documentation.

Submitting a Business Plan

A business plan is a document that can be an important tool for every venture because it provides information about projected financials and how you intend to make a profit. This is exactly the kind of information that lenders want to review, which is why they often require you to provide your business plan. Here are the elements that are typically found in a business plan: company description (including products and/or services), marketing and sales strategy, industry analysis, management team and a SWOT analysis (strengths, weaknesses, opportunities and threats).

Providing Collateral

As you have probably guessed, lenders often require collateral that’s used to back your loan. Accepted collateral varies, but may include equipment, real estate or any other asset of value. The reason lenders require collateral is because they want a way to recover the money loaned in the event that you are unable to pay it back. However, there’s also the option of getting an unsecured business loan if you don’t have collateral. Additionally, a lot of online lenders do not require collateral.