Financing is essential for many businesses, both small and large, that wish to grow their business or secure funding to ensure their operations run smoothly. However, the process of securing a business loan can be stressful, and you might find it difficult to find a lender willing to grant you a business loan. Our article tells you more about the factors that may weigh into a lender’s decisions and how difficult it could be to get a business loan.

Factors That Affect Lender’s Decisions

As lenders decide whether or not to grant a business loan, there are a few different factors that go into this decision. Even if your business does not check every box of a lender’s decision-making process perfectly, you may still be approved for a loan depending on the lender and the type of loan you are applying for. In general, the items that lenders will consider when making business loan decisions include the following.

Amount of the Loan

The amount of the loan is one of the most essential things that a lender will factor into their decision when it comes to granting your business loan. The amount of your loan might depend on the type of the loan, your business’s operations, and the overall cash flow of your business. You should also keep in mind that the loan amount you request and the amount you receive may be very different depending on the lender and loan type.

Cash Flow

The cash flow of your business is another essential factor that a lender will consider when determining if you are approved for a loan. Higher and consistent cash flow typically indicates that a business will be able to repay the loan and that the business will not fail or leave the lender without their money. In some cases, lenders may have a minimum revenue requirement before you are able to apply for a business loan.

Collateral

Collateral refers to valuable objects or assets that act as a safety in case you and your business cannot properly repay a loan to a lender. Some lenders require collateral, while others don’t see collateral as necessary; these loans are better for individuals who are just starting their business and don’t have many assets at their disposal. Whether or not you are prepared or able to put down collateral for your business loan can affect approval decisions.

Business Plan

Not every lender requires you to provide a business plan with your loan application, but it is always a good idea to have this document on hand. A clear business plan with goals for business revenue and repayment of any loan can give a lender confidence in your ability to repay the loan, and you can back up your business plan with examples of the cash flow and revenue that you have already secured.

Credit History

Almost every type of business loan will require the lender to take a look into your credit history and your credit score. Ensuring that you have a good credit history can help to vouch for your ability to repay the loan and give the lender confidence in their ability to lend to you. Your business’s credit history is also likely to be evaluated, and some lenders may have minimum credit score requirements before you are able to apply for a loan.

Length of Business Operations

Businesses that have been established and in operation for a long time are generally more likely to receive loan approval, as this length of operations can indicate a record of success and good management. This record also indicates to lenders that the business will be able to pay back their loan fully and on time. However, this doesn’t mean that you are out of luck if you are a newer business, simply that you may need to do more work to find the right lender for your startup or small business as you establish yourself in the community.

Will I Have Difficulty Obtaining a Business Loan?

Whether or not you have difficulty obtaining a business loan depends on the type of loan you are applying for, the record of success your business has, your overall revenue, and your credit history. Many different factors weigh into loan approval, which is why it can be hard to say exactly how difficult it is to obtain a business loan.

However, you can check your records online, write a clear business plan, and look for lenders that are most likely to approve you in your business’s specific situation to give yourself the best chances of approval.

Published by: Holy Minoza