As a small business owner, you know that access to funding is crucial for growth and success. 
However, you may also be aware that many small business owners like yourself struggle to get the loans they need to take their businesses to the next level.
You are probably wondering:
- why are small business loans that are difficult to get approved
- the best practices for increasing your chances of getting approved
- options for small business owners with good credit and options for those with bad credit
So, whether you’re just starting out or looking to expand your existing business, here is what you need to know to help you secure the funding you need.
The challenges of securing a small business loan
When it comes to obtaining a small business loan, there are a number of challenges that you may face as a small business owner.
Some of the most significant challenges include:
- Strict qualifications: Traditional lenders often have demanding criteria for approval, including minimum credit score, revenue, or the number of employees, which can be hard for small businesses to meet.
- High credit standards: Even if you meet qualifications, traditional lenders may have high credit standards, such as minimum credit score or debt-to-income ratio, which can be hard for small business owners with bad credit to meet.
- Lack of collateral: Many small businesses don’t have the assets to put up as collateral to secure a loan. This can make it difficult for small business owners to obtain a traditional loan.
- Time-consuming process: Applying for a small business loan can take a lot of time and paperwork, which can be a challenge for busy small business owners.
You may face many challenges when trying to obtain a loan, but with the right information and approach, it’s possible to overcome these challenges.
Best practices for securing a small business loan
Securing a small business loan can be a challenging process, but there are certain best practices 
that can help increase your chances of getting approved.
Some of these include:
- Develop a strong business plan: A clear and well-researched business plan that includes details of your products or services, target market, competition, financial projections, and management team is crucial to show lenders that your business is viable and profitable.
- Building a positive business credit history: A strong business credit score and report is essential for lenders when assessing a loan application. To achieve this, pay bills on time, keep credit card balances low, and avoid applying for too many loans or credit cards at once.
- Showing cash flow: Lenders will want to see that your business has enough cash flow to repay the loan, it is important to provide financial statements, tax returns, and bank statements to demonstrate financial stability.
- Having collateral: Offering collateral like real estate, equipment, or inventory as security can increase the chances of loan approval.
- Choosing the right lender: Research and find one that fits your business. Consider specialized lenders for your specific business.
Getting small business loans with good credit
As a small business owner with good credit, you may have an easier time obtaining a loan compared with those with bad credit. With a good credit score, you can qualify for more favorable terms such as lower interest rates and longer repayment periods. Lenders are also more likely to approve your loan application if you have a strong financial history.
Two popular options are traditional bank loans and SBA (Small Business Administration) loans.
Traditional bank loans are offered by banks and credit unions and are typically based on your credit score, revenue, and collateral. They can be used for various purposes such as purchasing equipment, inventory, real estate, or working capital.
SBA loans are government-backed options for small business funding, offered through participating lenders. They can be used for various purposes such as starting or expanding a business, buying equipment or property, and working capital. SBA loans have longer repayment periods and lower interest rates compared to traditional bank loans.
To apply for a traditional bank loan or an SBA loan, you will need to provide information such as your personal and business financial statements, and business tax returns. Also, you need to show that your business has the ability to repay the loan.
Getting small business loans with bad credit
If you have bad credit, it may be challenging for you to secure a small business loan
from traditional lenders. They often check your personal and business credit score when evaluating your loan application. If your credit score is low, it may be difficult to get financing with favorable terms, and the amount of the loan you can get may be limited.
However, there are alternative lending options available to small business owners with bad credit, such as:
- Equipment leasing: Small business owners can lease equipment for their business instead of buying it outright.
- Secured business loans: Small business owners can get a secured business loan by providing collateral such as equipment, real estate, or inventory.
- Factoring/accounts receivable financing: Small business owners can get financing by selling their accounts receivable at a discount to a factoring company.
- Microloans: Small business owners can get small loans from non-profit organizations and government agencies.
- Merchant cash advances: Small business owners can get a cash advance based on their future credit card sales.
You can explore these options to determine if they are a good fit for your business. It’s important to note that these options may have higher interest rates and shorter repayment terms than traditional loans.
Want to take your small business to the next level? We can help you explore alternative financing options that might be a good fit for you. Check out our business credit-building program.
