If you’ve never approached a lender before in the hopes of obtaining a small business loan, the process can seem a bit overwhelming. But once you understand what the lender wants from you, it becomes easier to grasp.
Here are the factors they look at most.
- Character of Business Owner
While we’ll get into some of the more technical elements of what lenders are looking for on the forms and spreadsheets you hand them, the very first thing they’re going to focus on is you. Do you possess the sort of character that’s needed in order to be a highly successful business owner?
A lender doesn’t expect you to be a perfect person, but they do want to see that you’ve hired a good team of people around you and have a good reputation in your industry.
- Business Plan
Let’s say your 12-year-old child approaches you and asks for $100. Before giving her the money, you’re going to want to know what the money is for, right? Well, a lender is the same way. Before forking over a large sum of cash, they need to know how it’s going to be used. You can put lenders at ease by developing a comprehensive business plan.
- Credit Score
“Even if you have the perfect business plan, no lender will want to give you money unless you have a good credit score, so taking a look at your credit report is always a smart move when your goal is to enjoy the best possible results,” Small Business Loans explains. “If you have any negative marks, learn what you can do to remove them.”
If your credit score isn’t quite up to par, don’t worry. It’s actually fairly simple to start raising your credit score. It may take a few months, but you can eventually get to a number that lenders are comfortable with.
- Existing Capital
“It’s important to remember that bankers are highly risk averse and want to make sure borrowers have a little bit of skin in the game,” small business financing expert Ty Kiisel writes. “From their perspective, the thought is a little skin in the game will make it harder to walk away.”
What do you currently have in the business? Have you invested $50,000 of your own money, or are you trying to fund the business with outside money? There’s nothing wrong with doing the latter, but just know that some lenders will want to see some of your own money involved. It speaks to your dedication to do whatever it takes to succeed.
A lender isn’t going to give you money unless they feel like you have a reasonable chance of being successful and giving them a return on their investment. With that being said, experienced bankers have been in the business long enough to know that a percentage of their loans won’t work out. In order to offset this risk, they need to see some sort of collateral. This could be equipment, real estate, or even accounts receivable.
Do Lenders Find You Attractive?
Trying to find a lender who is willing to give you money is like going to the bar in anticipation of finding a dating partner. Before you head out for the night, you spend time making sure you look good. If you aren’t attractive, you aren’t going to stand much of a chance.
The question you have to ask is whether or not lenders find you attractive, based on the factors outlined in this article. If the answer is no, then now’s your chance to get things in order.