Small Business Loans In the Digital Age


Despite positive news about a financial recovery and how technology is changing our world — ranging from wearable tech to electric cars — many small business owners still feel that we don’t have the same economic opportunities that existed before the financial crisis. Although the financial crisis occurred as far back as 2007-09, banks still appear reluctant to make small business loans. The recession, which many consider equivalent to the Great Depression in the 1930s, has created an atmosphere of ultra-conservative lending practices.

Fortunately, in a digital age, it’s no longer necessary to rely on major financial institutions to get a fast small business loan to keep your business going after a setback, or if you want to scale up your business.

However, even after shopping around for financing and finding a few lenders, you might not get the best terms when it comes to rates, lease terms, and fees. Fortunately, there are many things you can do to improve your chances of getting a loan on reasonable terms by proving that you are a low financial risk.

4 Steps to Increase Your Chance of Approval

What can you do to increase your chance of approval and get the best terms? Here are four steps to take to assure a lender that you have a solid business and that you will be able to pay the loan back in full and on time:

First, prove that you are a good business person and that you have a great business.

Financiers want to be reassured that they are working with a business owner who knows what they are doing. You will have to share your goals and plans, as well as talk about how you handled obstacles when first starting your own business. In addition, show that you have a reliable management team and able employees who ensure the stability of your business. The more proof you can show that you are a good business person working with a reliable team in a business that has a good prospect of success, they more you will build up trust and credibility.

expect your business to perform if you don’t get approved for financing, and how it will perform if you do.

Second, prove that your business generates a positive and steady cash flow.

People in finance still love to see numbers that indicate a steady cash flow. By demonstrating a positive cash flow continuously running through your business, you assure lenders that you have a good business, one where employees and creditors are paid on time. What financiers like is evidence of predictability that is not based on promises but on demonstrated past performance. The documents you will need to establish a steady cash flow are tax returns, financial statements, and bank statements. These documents offer a historical perspective about your business, providing evidence for performance and liquidity. If there have been dips in your cash flow, provide a clear explanation. Perhaps, for instance, you lost a valuable customer and then needed to spend more on marketing to fill up the pipeline again.

Third, prove that your businesses’ debt load is well handled and manageable.

Debt load is an accounting term to describe how much debt you have on your balance sheet. Investopedia defines it in the following way: “The amount of debt or leverage that a company is carrying on its books. The amount of debt a firm is carrying can be found in the company’s balance sheet, which most firms provide on a quarterly basis. Companies may incur this debt for numerous reasons such as expanding their business or making an acquisition.”

Financiers don’t expect you not to have any debt, but what they want to know is that it is not out of control and that the new debt of paying them back for the loan is something that you can handle. If you are not borrowing the money to take care of an unexpected financial crisis but because you want to grow your business, then be prepared to show exactly why your new plans have a good chance of success. How will the money be used and what additional revenue will you receive because of your new initiative?

Fourth, prove how well you’ve handled loans well in the past.

Financiers rely heavily on a company’s business payment history when making a decision whether or not to offer a loan. They want to know that you’ve paid off past debt on time. Find people who can provide a good reference for you. These could be joint venture partners or previous lenders. Also provide any contact numbers for others who might be able to verify your good history, including your bank and vendors.

Build A Positive Reputation

Once you get your loan, your principal task is to use it to build a positive reputation with financiers. One way to do this is progressively increase how much you pay monthly toward your new debt. These extra payments will do more than help you to quickly lower your overall debt, they will also help you create a good track record for the future when you might need another small business loan. In other words, take advantage of the loan to build up your business reputation as someone who is a low risk. While the idea of lowering your debt to income ratio may seem like a daunting idea, there are two ways you can make it happen. First, find ways of increasing your income, like getting more clients or improving your marketing and sales. Second, avoid taking on any additional debt.