Want to Boost Your Business Loan Approval Chances? 6 Tips to Consider

A business loan can help an enterprise expand its operations or meet working capital requirements. Opting for funds at the proper time helps businesses mitigate fund shortages and ensure seamless operations.

Whether you plan to expand your business to new locations, hire new staff or even purchase advanced machinery, availing a business loan is smart. With lending institutions offering attractive business loan interest rates, you can access capital at lower costs.

That said, getting business loan approval requires you to meet certain criteria. Your credit rating and score are included too, and are vital to the process. With a good credit history, lenders consider you a responsible borrower, and can improve your chances.

Read on for some helpful tips to increase your business loan eligibility and get approval with ease.

Evaluate Your Credit Score

A credit score is a numerical summary of your creditworthiness, and lenders consider this before giving loan approvals. This helps them ascertain whether or not you are capable of repaying the loan without default.

Maintaining an optimal credit score of 750 or above can increase the likelihood of getting business loan approval. This is because a good credit score implies that you have handled credit responsibly in the past, and have repaid dues on time.

However, if you find your score lacking, follow these simple measures to boost your credit score and, thus, your loan approval chances.

• Repay short-term, easy-to-repay credit completely
• Maintain a lower credit utilisation ratio, preferably under 30% of your total limit
• Avoid applying for multiple credits simultaneously
• Clear your business invoices and other expenses promptly

Maintaining a good repayment track record can also help you negotiate with the lender and get approval at affordable business loan interest rates.

Have a Proper Business Plan

Another essential tip to consider when planning to avail a business loan is to have the right plan. By charting out your business’ long and short-term goals, it becomes easier to determine the funding you may require.

In addition, you can provide a detailed financial analysis that can help lenders know how you plan to utilise funds. This way, a clear and honest description of your project increases the lender’s trust and boosts your chances for loan approval.

Whether it is about developing marketing strategies or rebranding, clear communication helps lenders develop trust in your business plan. This helps you get the required finances at pocket-friendly business loan interest rates.

Maintain a Consistent Cash Flow

A steady cash flow in your business is crucial as lenders assess this factor when approving your loan. Maintaining a positive cash flow implies the success of your business and its capability to manage operations seamlessly across a time period.

Simply put, a positive cash flow means you are gaining profits from your business, thereby indicating that you can repay the loan promptly without delay. On the contrary, if the cash flow is unstable, it indicates that your business is not functioning smoothly.

Lenders may reject your business loan application as repayment isn’t certain. So, ensure to maintain a consistent cash flow to avoid any rejections. Even if lenders approve your loan despite having unstable cash flow, the overall borrowing costs may be high.

Ensure to Keep a Lower Debt-to-income Ratio

This ratio compares your overall debt obligations against the total income you generate from the business. A low ratio increases the likelihood of loan approval, as lenders consider this as a positive sign.

If you have a higher ratio, it means your existing debts are high compared to the revenue you earn from your business. Lenders will perceive you as a risky borrower with higher chances of defaulting on loan repayments.

Thus, keeping this ratio low increases your approval chances of business loan and helps boost your credit score.

Meet the Lender’s Terms and Submit the Required Documents

It is important to meet the eligibility criteria lenders set when applying for a loan. Failing on this count will likely result in loan rejection. Whether it is the business vintage, your age, CIBIL score, business profitability or any other criteria, meeting them is crucial.

It determines whether or not you qualify for a loan. To get it on affordable terms, you need to surpass the minimum criteria.  Once you meet the required parameters, keep all essential documents handy to expedite the approval process.

Some of the documents required to qualify for a business loan include:

• Latest financial statements
• Legal agreements
• Tax returns
• Identity and address proof documents
• Proof of business vintage

You may have to provide additional documents depending on the lender. So, compare various loan offers and check if you meet the required criteria before you select a lending institution.

Create a Proper Repayment Schedule

Communicating your repayment plan with the lender increases the loan approval chances. Provide a detailed and transparent loan application process to establish trust and build confidence in the lender.

This helps the lender gauge your ability to repay the loan during unforeseen events. Furthermore, discussing the financial strategy with the lender demonstrates that you are adept at managing finances, even in the case of the worst scenario.

While adopting these strategies can help boost your business loan approval chances, remember that getting approval isn’t guaranteed. Meeting the eligibility parameters is equally important as having a proper business plan.

Even with everything in order, lenders may still deny you the financing you need, or may not give you the terms you want. This is why it is important to do your market research and get the right lender.

Above mentioned article is a sponsored feature, This article is a paid publication and does not have journalistic/editorial involvement of IDPL, and IDPL claims no responsibility whatsoever.