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Quest for a Business Loan: Tips from an Underwriter

small business line of credit

Getting a small business loan is such an easy process nowadays if you have access to the Internet. In some cases, it’s just as effortless as shopping for a new pair of shoes on the Web.

You can now go to a lender’s website, be approved, and get funded in a day, or even a few hours.

But then again, getting a small business loan or a business line of credit online is not the same as buying a new pair of sneakers or loafers.

Technology has made many things quicker and easier. But when it comes to business financing, applying and getting approved takes time and preparation.

In most cases, it involves putting your best foot forward, as my colleague Stuart Blake pointed out in his blog post on how to get a business line of credit and the mistakes to avoid.

Here are some tips based on my ten years in the fintech industry, including six years experience in evaluating and approving small business financing applications:

1. Know your funding needs
These are the three basic questions you need to answer before applying for a business loan:

  1. Why do you need the money?
  2. How much do you need?
  3. What debt payments can you afford?

Whether you’re applying for financing through a bank or an online lender, knowing and understanding your funding needs is important. It can spell the difference between a business loan that would help your business grow and one that would weigh you down with unmanageable debt.

Let’s consider two restaurant owners with different business needs. The first needs to replace an oven that broke down while the second is looking to expand to a new location.

A new oven is a major expense, but the first restaurant owner makes a smart move by taking up a credit line with repayments that are well within their profit margins.

On the other hand, the second restaurant owner applies for a credit line with a high credit limit for a plan that was clearly over ambitious. To make payments on the credit line, the second restaurant owner’s new location would have to be up and running within two months. A very aggressive timeline.

It would also need to generate four times as much profit as their current location is making.

Most lenders will try to help you figure out if your plan makes sense. But you should have a clear and detailed sense of your business needs and finances even before applying for financing.

2. Know your legal standing
Having a clear idea of your legal standing as a business tells a would-be lender that you have a solid grasp of your business affairs. And this is fairly easy and quick to do.

For most business owners, it involves checking with the Secretary of State’s office in your area to see whether there are business liens or tax liens on you or your business. In most cases, you can do this online.

If there are liens that are not valid, you could take the necessary steps to have them removed.

In my career, I’ve encountered clients who were able to increase their credit lines by as much as $50,000 in under 48 hours just by removing a couple of old irrelevant liens from their business.

If your business is incorporated, this would also be a good opportunity to check if you are properly registered and in good standing with the Secretary of State. If your business isn’t incorporated, you should consider doing so before applying for financing.

Remember, lenders often view incorporated businesses as more stable and creditworthy.

3. Google yourself
Googling yourself is important for getting a business loan? Yep, that’s right.
Your online identity, including the information you have on your business website, and even the comments and complaints your customers post on review sites, could become critical factors in your quest for funding.

Many financing companies will check your company on the web as a way of gaining more insight into you and your business.

They’ll likely check your LinkedIn and other social media profiles. They’ll probably even read what customers say about your business on such sites as Yelp. Negative customer reviews could reflect poorly on your business. You could take steps to mitigate the impact of these reviews by responding to the comments.

It’s also smart to be aware of these comments and be prepared to explain the negative reviews in case they come up in the application process.

4. Check your credit
Your credit will, of course, be critical in your bid to get a loan or a business line of credit.

Most lenders will check your personal credit report in evaluating your loan application. While it is often overlooked, your business credit report is also important. It can have a big impact on your application, especially if your personal credit report isn’t stellar.

Checking your credit also gives you the opportunity to identify issues that you may be able to resolve easily, such as settling old debts or correcting false information.

5. Have your documents ready
If you’ve secured financing for your business in the past, you know a critical part of that process: you will be asked to provide documents. Sometimes lots of them.

This is also true with online business lenders. In fact, you may even be asked to provide additional documents as your application is being processed.

That’s why it’s important to make sure you have key documents ready and in digital form when you’re applying for a loan or a business line of credit. This would speed up the application process and prevent delays.

That was the experience of a consulting company in search of financing. The firm had just gone through a significant downturn, which could have led to the rejection of the company’s application. But the consulting company ended up being funded on the same day. The reason: the business owner had all the necessary documentation that painted a clear picture of the business. The documents showed that the downturn was the result of normal seasonality and that the business was about to bounce back.

Here’s a list of documents worth keeping handy when applying for a loan:

  • Recent bank statements (last 3 to 12 months)
  • Recent tax filings (1 to 3 years)
  • Incorporation papers
  • Updated balance sheet
  • Profit and loss report

6. Find the right lending partner
The quest for business financing is, in many ways, also a search for the right lender or financing partner. This is particularly important now that you have so many online financing options.

The right lender and credit line can build a business up, help them grow and achieve tremendous success. The wrong one could cripple a business with poor financing decisions.

What’s an ideal lending partner?

First off, the lender must have the type of financing you need. There are many choices, and picking a lender depends on what your business needs.

The ideal lender also must be transparent about how their products work and their financing terms, including interest rates and fees.

Author:

Written by Gil Rosenthal.

Gil Rosenthal is director of risk operations at BlueVine. A native of Israel, Gil comes from a family of small business owners who offer consulting services to other business owners. He has been in the FinTech industry for over a decade, including the past two years with BlueVine. He commutes to work 90 minutes in each way, but feels it is worth it since he’s helping small businesses create sustainable growth.

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