Successfully getting a bank loan approved is not the simplest process. There is always a chance that you will be rejected, which can lead to frustration and stress. As inflation continues to grow across the nation, lenders are now stricter in implementing their policies.
While there are a lot of aspects lenders will be looking at, it is crucial that you are always ready to showcase a comprehensive portfolio for review if you want to receive a loan. Some of your documentation could take months to collect, and some of it can take years to get them in a condition lenders will prefer.
Here are some essential tips you need to improve your chances of your loan being approved:
Improve Your Credit Score
Today’s technologically-driven world offers all-out access to your financial information. Credit reporting agencies want to check all your files that show your financial behavior. So, it is absolutely important that your credit rating must exceed their expectations when applying for a loan.
Assess your credit rating, and check if the information is correct and current. This is one aspect you must work diligently on. Reducing your existing debt and staying current on your accounts can take years to improve. You must also declare all accounts you maintain, and take responsibility for all of them. Managing your finances efficiently will show the lenders that you are in complete control of your funds and are likely to pay your loan off in a timely manner.
Only Apply For What You Need
Put yourself in the shoes of your prospective lender for a moment: there is a greater risk connected to lending an individual $50,000 than there is if they lend another person $10,000 if all their credit factors were the same. While you may really need the $ 10,000, you may also feel that it would be good to have some additional funds to buy a phone or go on a vacation.
Depending on your credit history and score, that extra amount of money can be the deciding factor if you would be accepted or rejected for a loan. You should only apply for the loan amount that you will need.
For some types of loans, lenders may require you to submit collateral to back the loan. Collateral is an asset coming from a borrower that can be held or sold by the lender if you are unable to pay your debts. It is usually a way on how lenders can get back their money if you are unable to pay your debts.
Not all lenders will require collateral. Some may demand a blanket lien on some of your assets which is giving lenders the authority to take away an asset such as a piece of equipment or real estate to recover loans that are left unpaid.
Each lender has their own terms and requirements, so don’t hesitate to ask if you are uncertain. If you cannot provide collateral or you do not want to risk losing assets, then an unsecured business loan may be a better choice for you.
Meet Qualifications and Requirements of Lender
Meeting or exceeding a lender’s minimum requirements and qualifications will give your application a significant boost to getting approved. Several lenders may provide flexibility if you have been underperforming in a certain area but over performing in another, but to improve the chance of getting approved meet and exceed all of the criteria.
Borrowers are usually required to meet minimum criteria that are commonly related to their credit scores and annual revenue. Lenders are usually dismayed if you have records of recent bankruptcies and other bad credit ratings.
If you are looking for loans assisted by the US Small Business Administration, you will have to meet more SBA loan requirements. You must exceed the SBA’s standards because they offer loans only for small businesses.
Borrowers usually need to have a great credit score and business revenue, and must be up-to-date on all government-related loans with no past dues. So, if you are not current on your federal student loan or government-issued mortgage, you will automatically be disqualified.
Aside from that, all banks and other lenders will usually require various legal and financial documents while you are processing your application. Some of these include:
- Balance Sheet
- Income Statement
- Income Tax Returns
- Bank Statements
- Nationally Accepted IDs such as driver’s license
- Business License
- Commercial Leases
Qualifying for online lenders can be easier. If you have a high credit score, some online lenders can offer good rates that are almost the same with bank loans. Although they usually approve loans based on conventional factors such as credit scores and cash flow, the loans they provide have fewer requirements compared to SBA loans.
Some online lenders may even approve your loan even when you have bad credit, and they may be more understanding when you have a recent bankruptcy. The catch to this is they may offer a more expensive loan.
Have A Strong Plan
Your lenders will want you to be knowledgeable on how you intend to use the money, and will usually want to be assured that you are able to repay your debts. They may need a strong business plan that contains a detailed purpose of the loan and how you can increase your profit. Your plan should contain current and expected financials and should clearly show that you have sufficient cash flow to cover your expenses. Having a solid plan will provide the lender more confidence in you which will boost your chances of getting your loan approved.
Consider all the requirements needed to get your loan approved. Get everything organized by having a checklist of required documents. It is recommended to scan and save all your important documents for other purposes. This will provide easy access and backup if ever you lose an original copy of a requirement. By knowing what are the exact requirements you will need, your loan application will in no doubt be approved without you being stressed out.