How to Get Approved for a Small Business Loan

As an entrepreneur, you know there’s truth in the adage, “It takes money to make money.” But success also requires preparation. If you’ve reached the point that you need to borrow money for your business or you’re just starting out, you must demonstrate to lenders that your ideas and operational plans are viable.

Small business loans are a fact of life and they’re often essential for growth and funding. With these step-by-step instructions, you’ll be able to streamline the process and boost your chances of getting the funds you need.

Assess your business needs.

Before you even start the small business loan process, identify the specific purpose for borrowing. Some common uses are for startup or expansion capital, working capital and equipment purchases. You can better determine the type and amount you’ll need when you outline the specific use case.

Check your credit score.

As a consumer, you're probably already familiar with the importance of good credit. A high credit score helps borrowers secure favorable interest rates for credit cards, as well as mortgages and autos. Just as a personal credit score offers a snapshot of an individual's financial health, a business credit score paints a picture of a company's creditworthiness.

Lenders will evaluate your business credit score as part of their lending or credit card decisions. That's why it's important to practice good financial habits like paying bills on time, reducing debt and maintaining cash reserves.

Prepare a comprehensive business plan.

Established businesses usually have a performance and sales track record to bolster their qualification for borrowing. But newer businesses can enhance credibility with a comprehensive business plan that includes:

• Executive summary. Briefly describe your goals, mission statement, how you would spend the funds and why a lender should support you.
• Company overview. Describe what your business is and how it’s different from competitors.
• Executive biographies. Demonstrate industry knowledge, expertise and leadership capabilities.
• Market analysis. Present data that illustrates your target audiences’ need for your products and services.
• Financial projections. Explain your pricing structure, existing or potential sales volumes and the timeline to turn a profit. Describe in detail how you’ll use the requested funds — whether to ramp up production, expand your team or acquire new technology.

You may only get one chance to present your plan, so make it count. Before meeting with lenders, ask a mentor or another small business owner to review your business plan to ensure it is complete and structured appropriately. Given how quickly the economy and industries can change, even established businesses could benefit from reviewing their business plans before applying.

A well-written business plan demonstrates why you’re a strong candidate for lending.

Organize relevant financial documents.

When you apply for a small business loan, lenders will ask for a lot of financial information. Before starting the application process, you should assemble the following documents.

• Business and personal bank statements
• Income and loss statements and balance sheets (if you are an existing business)
• Tax information
• A copy of your business license
• Articles of incorporation
• Lease documents, if applicable

This list isn’t exclusive, and lenders may ask for additional financial documentation. The SBA offers a handy checklist that you can review to ensure that you have everything needed to make a strong impression.1

Explore business financing options.

Common ways small businesses access funding are SBA and bank loans, as well as business lines of credit. Keep in mind how you will use the funds, as well as where you can get the best rates and terms when comparing options.

• SBA Loans and Lines of Credit
  SBA financing is popular because the loans are fully or partially backed by the federal government, making them less risky for the lenders who participate in the program. Small businesses that haven't been able to qualify for traditional lending sources can often be approved. Businesses may also receive better terms, like low down payments, and sometimes no collateral is required.
  
  Funding options include loans and lines of credit up to $5.5 million depending on the product.2 They may be used for expansion projects, working capital, exports, and international trade. Some SBA programs also offer financial counseling and education programs. The SBA also offers microloans up to $50,000 for new businesses and nonprofits without the financial history to qualify for traditional funding. Because these loans are offered in lower amounts, the requirements to qualify are often lower too.
  
  Many commercial lenders also offer SBA loans. You can visit the SBA website to find a lending partner and research the best options for your needs, including microloans. In some cases, you must have unsuccessfully tried to borrow money from other sources to qualify for an SBA loan. Talk with your lender for details.
  
  A word about SBA grants: The SBA doesn’t offer grants for starting or expanding a business. But you may qualify for federal funding if your business conducts scientific research and development and has high potential for commercialization. The SBA also provides financial awards to states and territories that help small businesses with export development. Nonprofits, resource partners, and educational organizations that counsel and train entrepreneurs may also qualify for SBA grants.


• Traditional Bank Loans
  A traditional loan is available from most banks and credit unions. This is a good choice for established small businesses or startups with significant assets. Applicants must meet certain requirements to prove creditworthiness, including an established credit history and good credit score. Some financial institutions may also request your personal credit history. You could also be asked for collateral — property like a building, vehicle, or inventory – to secure the loan.


• Business Lines of Credit
  A business line of credit is a flexible lending option that combines some of the benefits of a loan and credit card in one. For example, unlike a loan, a business line of credit can be used for anything. Some are also unsecured, which means they don’t require collateral. Business lines of credit often carry a higher interest rate but, because they have credit limits like cards, you’ll only pay interest on what you spend instead of the entire amount of the line.
  
  Commercial banks and online lenders offer lines of credit to small businesses. Shop around for the best terms. Though some lenders process applications online, you should still be prepared to supply financial statements, tax information, balance sheets and other documentation when you apply.

• Online Lenders and Alternative Financing Options
  Alternative and fintech companies also offer funding. Options include loans, crowdfunding and peer-to-peer lending. Although these services often have flexible qualification requirements and fast access to cash, they usually charge high interest rates and shorter repayment periods. You’ll typically want to exhaust other options before applying with an online or alternative lender.

Build a relationship with a local banker you can trust.

When you’re in business, it’s a good idea to develop a rapport with a local banker. A bank relationship manager should understand your business goals, products or services, and operating model. As an important member of your business advisory team, the relationship manager can suggest the best banking solutions for your needs, as well as effectively advocate for you within the financial institution.

Submit a detailed application.

Sometimes a loan application is the lender’s only opportunity to understand your financial needs and character. A through application demonstrates how you manage responsibilities, like making payments on time. It also limits errors that could delay your business financing.

Be patient during the lender’s due diligence.

Due diligence is a process during which lenders confirm the accuracy of the information in your application and identify potential problems. During this time, the lender will likely perform credit and background checks and closely examine your finances. Other aspects they consider include the state of the market or industry, potential compliance concerns and your debt service coverage ratio (DSCR), which compares your net operating income to your debt obligations.

Transparency is critical throughout the small business loan process, so cooperate with your lender. Be upfront about any possible issues or blemishes in your history. The lender will find them eventually, and honesty is always the best policy.

Negotiate repayment terms.

Understanding your financing terms is crucial, and your lender should answer any questions you have. When negotiating, highlight what makes you a good partner, such as a high credit score.

Remember, you can always enlist a professional to help with these processes. Lawyers and financial advisors can help you review the terms and ensure fairness.

Commit to a repayment strategy.

To avoid extra costs, negative hits on your credit report or legal challenges, create a clear plan for repaying your obligation. Carefully examine cash flow so you’ll know when cash is available. How well you manage payback demonstrates how well you manage financial responsibilities and sets the tone for future business financing.

Interested in borrowing money for your small business? Synovus is an SBA Preferred Lender that is committed to helping small business owners achieve their goals. Our banking professionals are ready to assist you in identifying the right loan type and securing the money you need for your business. If you’d like to learn more call 1-888-SYNOVUS (1-888-796-6887). You can also stop by one of our local branches.