Learn 3 solid ways to increase your chances of getting approved for the small business financing you need to start, build, or grow your...
Dear Entrepreneur: would you like to obtain the small business financing you need to start, build, or grow your business? If you said "yes" then join the club! Before we get into the 3 tangible things you can do, let's talk about a rather eye-opening survey that was conducted earlier this year. According to the Pepperdine Private Capital Access Index, 26% of survey respondents attempted to raise capital between January 2013 and April 2013. Out of those who attempted to raise capital, 68% said that it was difficult to acquire new financing, while only 16.5% said it was easy.
So to the 16.5% who said this was easy, well, this blog post may not be for you. In fact, could you start blogging a little bit so we can all learn from you.
Furthermore, 65% of respondents said they expect the process of raising capital to continue being difficult over the next 6 months, while only 20% expect it to be easy. Lastly, 67% of survey respondents said they expect slower business growth if they are unable to obtain financing. If you want to increase your chances of getting your small business financing so you can grow your business, your best bet is to be prepared. You can prepare yourself by following these 3 tips:
- Develop a well thought out business plan. Your business plan should clearly explain to lenders what your business is all about and how it plans to generate revenue. It should also clearly outline how you plan on paying back any borrowed funds. I'm personally a fan of 1-2 page business plans such as Jim Horan's popular model but for some lenders, such as when obtaining SBA loans, you will likely need a slightly more traditional business plan. Some online models with lenders offer templates as well. Just remember, business plans change and evolve with time but not at a whim and not just because a shiny object came along.
- Monitor -- with purpose - your personal credit. Monitor your personal credit to be sure no derogatory or delinquent accounts are reporting. Most lenders will check your personal credit history to determine your creditworthiness. There are scores of online credit monitoring services that will all serve this purpose, but you need to know why Creditera and MyFico are different. Creditera is currently the only credit monitoring platform on the market that allows you to see and monitor BOTH personal AND business credit. Since banks and many lenders will check your FICO scores, make sure to check your own FICO scores, not your FAKO's (see how FICO's and FAKO's are different). MyFico.com is the only place online where you can purchase all 3 of your FICO scores without creating a hard inquiry. The best thing to do is immediately look for the Reason Codes that list, in order, the things that are hurting your score the most. Last thing: take action. Don't just monitor, do something about the issues that may be holding you back.
- Do your research so you know your options. Research what options may be available to someone in your situation. For example, I'm a big fan of factoring (when it's done the right way). In fact, if my company could factor our receivables then it would be less costly for us than accepting credit cards. However, if you don't have the right book of receivables then this won't work for you. Also, if you need less than $200,000 in financing then an SBA loan is probably not what you're looking for. When you remove the Patriot Express Loans from the SBA 7(a) loans in 2011 the average size of loans was $624,000. The SBA administrator has even gone on record to say that they are not real good at doing smaller loan sizes. There's 3-4 primary options if you need an equity investor and 12-14 primary debt options if you want to borrow the money you need. You may want to find a good small business loan broker as well, but it all starts with some basic research and knowing your options. If you need a referral to a loan broker then check with the largest loan broker training company in the U.S., Commercial Capital Training Group.
Understanding and following these tips can greatly improve your chances of obtaining funding, whether that's a small business loan, a business line of credit, a factoring facility, or maybe through an angel investor. The fact of the matter is most lenders have very strict criteria for small business loan approval. You will want to find your right financing solution and then the right lender also.