What Lenders Really Want In A Small Business Loan Candidate

When small business owners embark on the journey to secure a loan, they often find themselves facing a myriad of questions and concerns. What do lenders look for? How can you increase your chances of approval? While the loan approval process may seem opaque, understanding the key factors that lenders evaluate can significantly simplify things.

1. Financial History and Credit Score: The Quantitative Aspect 

The most straightforward factor in the decision-making process is your business's financial history. Lenders will scrutinize your credit score, repayment history, and existing debts. A strong credit score is an undeniable asset. However, if your score isn't top-notch, don't despair. Lenders also weigh the overall trajectory of your credit – recent positive financial behavior can still make an impact. 

Tip: Ensure you settle any outstanding debts and maintain a consistent bill payment routine to boost your creditworthiness.

2. Business Viability and Revenue: Showcasing Stability 

Lenders want assurance that you can repay the loan. Your business's revenue and profit margins serve as indicators of your ability to manage debt effectively. A consistent record of increasing sales or stable revenue suggests a viable business model. 

Tip: Clearly outline your revenue streams and growth strategy in your business plan, highlighting any upward trends. 

3. Collateral: An Added Security for Lenders 

Some business loans may require you to provide collateral—assets like real estate, equipment, or inventory—that the lender can claim if you default on the loan. The value and quality of collateral can influence the loan amount and terms you're offered. 

Tip: Ensure you have a clear understanding of the value of your assets and are willing to use them as leverage.

4. Duration of Business Operation: Trust in Experience 

In the world of business lending, experience counts. A business with a track record is typically seen as less risky than a startup. Lenders often prefer businesses that have been operational for a few years. However, if you're a newer entity with strong financials and a robust business plan, don't be discouraged. 

Tip: Emphasize any past entrepreneurial successes or industry-specific experience to underscore your competency.

5. Purpose of the Loan: Clear Vision and Planning 

Lenders appreciate clarity. Clearly articulating why you need the loan – be it for expansion, purchasing inventory, or other operational needs – can instill confidence in lenders. It shows foresight and strategic planning. 

Tip: Be specific in outlining how the loan will benefit your business, potentially leading to increased revenue and growth.

While the loan approval process can seem daunting, understanding what lenders seek in a candidate can demystify the journey. By addressing both the quantitative and qualitative aspects of your business and showcasing your dedication and planning, you can position yourself as a strong, reliable candidate in the eyes of potential lenders. Remember, preparation and clarity are your allies in this venture.

To learn more about small business loans, contact a lender near you.