Welcome to the third article in a three-part series on what it takes to start a business in overwhelming economic headwinds. Depending on your business plan, times of uncertainty may have better startup odds than you might think. Step three: Get approved for your loan.

The word “prepared” cannot be emphasized enough concerning the process of qualifying for a small business loan. In tough times especially, your potential lender’s main concern is to make sure you have the ability to repay the loan. So how do you show you’ve got the goods, pandemic or not?

“Reduce any surprises,” says Farrah Solly, Senior Manager, Small Business Initiatives at Coast Capital. “You will need to provide documentation, including business registration-related documents, financial statements, and net worth information.” In other words, be organized.

And that’s just the beginning. Not only does your lender want to know you inside and out—but you need to understand all of your lender’s requirements. Here are some tips on meeting the overall qualifications for a small business loan.

4 strategies for sealing the funding deal

Not surprising, the first task is to be ready for a rigorous risk assessment on your business, which ultimately determines whether you get approved as well as the specific lending terms and conditions. Each financial institution has criteria for reviewing small business loan applicants, but the factors below are what they focus on most:

1. Prove your credibility: First impressions count. A potential lender will evaluate how you present your business plan and whether you have the skills, experience, and track record to succeed. They’ll also want to see that you’ve analyzed the market, considered the current economic climate, and developed a risk management plan. “Generally, we meet with the members in person or over the phone to do a full needs analysis,” says Solly. “Time in business, credit history, and ability to debt service are key factors here.”

2. Know your financial capacity: A potential lender assesses the likelihood that you can repay the loan later by looking at the following fundamentals:

• Your credit history: Build both your personal and business credit scores. “If you have had past issues related to your credit report—be aware of them and communicate them,” says Solly.
• How much personal capital you can invest in the business: How much you have can minimize your total debt amount, improving your cash flow as your business gets underway. “You want to show financial institutions a strong personal financial commitment to the venture,” says Solly. “In effect, you’re not just asking a bank or credit union to put up money; you’re financially vested as well.”
• Your anticipated or actual cash flow: This number is important because it shows your lender how much of the loan payment you’ll be able to pay back monthly. “We place a strong emphasis on the cash flow of a business, and/or the strength of the business financial statements,” says Solly.
• How you intend to use the loan: Share current and projected financials for functions like facilities, operations, promotions, marketing, and sales.
• Annual revenue (if applicable).

3. Put in the required time: The longer you’ve been involved in the line of business, the better. Be aware that some lenders may want to see that you’ve already been operating for at least a year.

4. Have some collateral: Collateral usually makes it easier to get a loan, as the lender has assurances that it will be repaid. But a word of warning: If you default on the loan, the lender assumes ownership of the collateral to cancel out the debt.

Give your application a fighting chance

Before applying for a loan, think about how you can increase your chances of getting approved. Make sure all your bills are paid, finish your business plan, perform your market research, and check your credit report. If you’ve been generating income on the side, get copies of your CRA Notice of Assessment from the past two years. “Add security to this list as well,” says Solly. “This can be tangible like real estate, a general security agreement on the entity, or strong personal guarantees.”

To boost your chances of being approved, it’s always wise to speak to a financial advisor first so they can recommend the borrowing type that may be right for your business. The Coast Capital Savings Business Banking Team is ready to address your financial needs and answer any questions. So don’t hold back. As hockey Hall of Famer Wayne Gretzky once said: “You miss 100% of the shots you don’t take.” Don’t let your dream of business ownership be one of them.

To discuss your options, book an appointment with one of our business experts. Also, visit The Small Business Centre for more small business tips, funding options, and valuable insight.

Things we have to say

While these suggestions are believed to be good practices, they are intended as general information only. Business owners should assess their own unique situation and may wish to seek professional advice to determine the right approach for them.