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6 tips to improve your odds of receiving a business loan

Home Blog6 tips to improve your odds of receiving a business loan

Key takeaways:

  • Understanding what the bank looks for when writing a loan can help you develop a stronger application.  
  • A strong business plan and understanding of your business’ finances will help you in the loan process.
  • Increasing your credit score and cash flow will help the bank see that you’re a reliable candidate for a loan.

So, you need a business loan? Applying for a business loan can be a nerve-racking experience. This is understandable, given the statistics on approval rates.

According to Forbes, in 2018, big banks only granted 25.9 percent of the business loan requests they received while regional and community banks granted about 49.4 percent of the requests they received. That’s nearly 50-75 percent that weren’t approved.

There are several factors that influence the bank’s decision in giving you that loan. Help increase your chances of getting a business loan by following these tips.

Know how you’re going to use the loan.

The more specific the purpose you have for needing a loan, the easier it is for the bank to evaluate whether to grant the loan. Show where the funds would go and how they would work to make your business grow in the long and short term.

Strengthen your credit score.

Did you know that your business has its own credit score? Start by understanding what your business credit score is and how to interpret it. This should be something you do before even applying for a loan.

If your business is relatively new, it won’t have had the opportunity to establish a strong score. This is where your personal credit score comes into play. The bank wants to see that you can pay on time and limit your existing debt.

Prepare a solid business plan.

You need a rock-solid plan that covers the details of your business. The bank will need to see that your business has a relevant purpose. This is where you’ll want to show your growth potential and operations strategy. You’ll also need copies of relevant legal documents along with tax return statements and bank statements.

Show your business’ health.

Be ready to show your business’ gross monthly revenue. The more stable your cash flow is, the less risky it is to provide a loan.

If you’re someone who feels uneducated about accounting or finance, start to learn about keeping track of receivables and managing your cash flow. Organization will be key in helping you explain what money is coming in and what expenses your business is consistently making.

Invest in your business.

Put your own money on the line. By showing that you have equity in your business, you can help increase the bank’s trust in your dedication to your business. Many banks, including MidWestOne, also require you to present a personal financial statement with your business loan application.

Consider where you’re applying for your loan.

Do you have a pre-existing relationship with a bank? Can you establish a relationship? Smaller banks typically have higher approval rates for business loans than large banks. Research the bank where you want to apply for a loan. Understand the tools that bank offers for helping your business and the banker’s ability to help you navigate banking for your business.

If you’re interested in learning more about applying for a business loan, visit your local MidWestOne branch.

MidWestOne Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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