4 Factors Contributing to Business Loan Approval

To help a business grow, entrepreneurs should be able to get a business loan. They need it to expand, buy new equipment, or manage cash flows. For them, it’s essential to be aware of factors that affect business loan approval.

Here are 4 factors contributing to Business Loan Approval!

1.Credit score and credit history.

A good credit report shows you’re less likely to miss payments. It lowers the risk for lenders.

Importance of Credit Score

Maintaining high credit scores increases your chances of loan approval. This sign indicates that others can trust you with debts.

Tips on how you can build up your credit score:

• Paying your bills on time is important. It ensures that all payments are timely. Late payments incur fees and hurt your credit.
• You must reduce the amounts owed. This means lowering your total debt. Do this by borrowing less from different sources. Especially, avoid ones with high interest rates. Keep checking reports for errors or omissions. Dispute them immediately when you find one. They may lower your credit rating.

Individuals must keep an excellent credit score to get a business loan with good terms.

2.Business Plan and Financial Projections

Lenders require persuasion. You will need a good business plan and realistic financial projections to do this. You show the possibility of your business being successful.

Elements of a strong business plan.

• Executive Summary: Give a brief introduction about your company. Include its mission and objectives.
• Market Analysis: Provide insights about your industry. Say who your target customers are and what the competition looks like. Financial Statements: Include an income statement, balance sheet, and cash flow statement.
• Funding Request: State the amount of money needed and specify its purpose. Also, say if it should be used.

3.Collateral and personal guarantee.

Collateral and personal guarantees provide security for lenders. They reduce some risks of lending.

What Collateral Is

If you fail to repay the loan, the lender may take the collateral. Collateral is assets that you’ve pledged as security. Real estate, inventory, or equipment are the common types of collateral.

Why Personal Guarantees Matter

If your business defaults on a loan, then each director must sign a personal guarantee. They’re for the remaining money. They must do it promptly, within 36 hours of the request.

Kinds of Collateral

• Real Estate — property and land used as significant collateral.
• You can pledge goods and products in stock as inventory.
• Equipment — machinery, and technology utilized in business operations.

You show commitment by providing collateral or a personal guarantee. You do this when applying for a loan. This reduces the risk for the lender.

4.Cash Flow and financial health.

Lenders carefully inspect how money moves through your business. They also assess its finances. They do this when deciding whether you qualify for a loan.

Significance of Cash Flow

Cash flow is the difference between the amount of money that comes in and goes out of your company. You have positive cash flow if it enables you to meet all expenses as well as settle debts. It indicates to creditors that you are financially stable.

Assessment of Financial Health by Lenders

Lenders use financial statements to see if your company is good at making a profit. They check if it has enough cash and is efficient. They seek steady sources of income, controllable costs, and high profits per sale.

Ways to Increase Cash Flows

• Manage your inventory well to cut storage costs. Also, prevent stock shortages. You could also read this to know how you can manage your inventory.
• Cut unnecessary spending. Check your habits. Identify items that add no value. Then, remove them from the budget.
• Improve Accounts Receivable Collection. Send invoices. Follow up with clients who have yet to pay on time until they do so without delay.

Good cash flow and strong financial records will make your loan application better. This will increase your chances of approval.

Final Words!

Understanding the factors that aid loan approval is key. Addressing them can greatly boost your success. They help in securing funding. With Ruloans, we help business owners get a business loan. We do this by offering access to business loans from top financial institutions. If you’re looking to work as a business loan DSA, consider joining Ruloans as a DSA loan agent. Ruloans has over 25,000 distribution partners. We have great partnerships with banks and financial companies. These make it the best platform for your success. You can easily register through our Ruconnect app. The app is on the Play Store. Or, visit our website to learn more.