4 Common Factors that Affect Your Small Business Loan Decision

The loan decision for your small business will be decided by several factors. In order to increase your chances of approval, it will help to know what the lender will consider. Here are a few common factors that affect your small business loan decision.

1. Business Credit Score

Just like individuals, businesses have credit scores as well. The scoring system works a little differently, but they are the same basic idea. If your business has been in operation for a few years, there is a good chance that it has developed a credit score. Whether or not your score is good or bad will play a big role in if you get approved. Before you start applying for loans, you should get a copy of your business credit report. This way you will know how you stack up in the credit market.

2. Length of Time in Business

The length of time that your company has been in business will play a huge role in whether or not you get approved. Lenders like to know that you have been in business for several years before they want to do business with you. In most cases, they will require at least 3 years of successful business history before they will accommodate your request for a loan. Many businesses that fail, usually fail within the first 3 years. Therefore, if you have lasted longer than that threshold, there is a good chance that you will be around for the long haul. When giving businesses a loan, lenders like to know that you are going to be around to pay them back. 

3. Business Plan

Another criteria that the lender is going to evaluate is your business plan. They want to know what you plan on doing with the money that they will be giving you. They want to see a very detailed, well thought-out business plan. They want to see financial budgets, forecasts and a good possibility of making a profit. If you can not prove to them that you have a good chance of success with your project, there will be no reason for them to give you the loan. 

4. Financial Statements

The lender is also going to want to evaluate your financial statements in detail. They will look at all of your assets and liabilities and make sure that you represent a good credit risk. If you have taken on too much debt, you may not be a good candidate to give more money to. Lenders like to be able to see a lot of detailed information when they are evaluating you. 

These financial statements will also help to prove whether you make enough money to support the loan payment. Each lender has their own criteria that they use to determine whether or not you can afford a loan. Therefore, the more income you can prove to them, the better off you will be.