Business Loan – Increasing Your Chances Of Getting One

Obtaining funding for a business is always more difficult than person credit. Why? A person can’t escape their credit obligations unless they file bankruptcy while businesses can and do just fail everyday.

If you tried getting a loan for your business recently, you would have been disappointed to see many banks close their doors in your face. The recession was primarily caused by irresponsible lending where banks awarded loans to several people who had poor credit worthiness. They are definitely not going to repeat their mistakes again which means that you will have to go through a very strict process in order to be approved for a loan these days. This is true even if you are a good bet to repay the loan.

That being said, there are some ways with which you can greatly increase your chances of getting a loan. Some of them are discussed below here.

Getting a loan ultimately boils down to what is called the Five C’s of loan approval today. The five C’s are Capacity, Character, Capital, Collateral and Conditions. Here are a few ways to tune up each C for your business.

Capacity – Go over your financial ratios to see if you have good ratios that will be analyzed by the bank. The bank will most probably be interested in your quick ratio which is nothing but your current assets over current liabilities. You will also need to check your working capital to see if it is at healthy levels. The bank will use these figures to decide on your capacity to repay, which is very important to securing a loan.

Character – Build up a reputation before you try to approach a bank for a loan. Your business will have to have some history and it will be ideal for the business to have some good standing relationships with customers and vendors who can vouch as a reference. Also, maintain a good relationship with a bank that holds your business account as they might be the best place to approach for a loan.

Capital – Banks will look into your vested interest to see if you have put money in your business. If you have, it will work in favor of your business as the bank will know that you will be more responsible when your money is involved.

Collateral – There is not much to explain here. Your chances of getting a loan greatly increase when you have collateral or a guaranty that can back the loan.

Conditions – Conditions refer to the unique situation of your business and the environment it operates in. The bank will analyze the industry your business operates in to see if it is worth investing in. It will also compare your company’s financial performance against competitors in the same industry to see if you are doing well. Do your research and try to match your competitor’s financial performance if you want to stand a good chance of getting a loan approved.

Can you get a business loan these days? Absolutely, but you need to position yourself appropriately.

Thomas Ajava provides commercial finance mortgage funding to borrowers via CommercialFinanceMortgage.com.