Small businesses need cash flow to sustain operations and grow revenues. Oftentimes, owners use small business loans to cover the costs of new equipment, inventory or employees. While the cash injection could help your business, it is very difficult to qualify for these loans. Banks have stringent requirements to prevent them from losing money on the loan. They need to know that the business is strong enough to pay off the loan even if things don’t work out perfectly. To learn more, follow these steps to qualify for a small business loan.

Compare Small Business Loan Options

Before you apply, compare the various small business loan options available. Depending on the size of the loan, you will have to meet various requirements and terms. For example, an SBA loan is government backed, so the interest rate is a lot lower. These loans have tight minimum requirements though. Your company must be established with significant business revenues. Depending on the type of loan you’re looking for, you may need as much as $75,000 in annual revenue just to apply. If you can’t qualify for an SBA loan, there are many other alternative loans from private lenders or commercial loans offered by banks. As you compare the best options for your company, take careful notes of the eligibility requirements, interest rates and payment terms.

Improve Your Credit Score

To secure any of the small business loan options, you will need a strong credit score. If your business hasn’t been around enough to build its own credit score, the bank will look at your personal credit score. These scores are how the bank will determine if you pay back debt. If your score is low, you can rebuild your credit score by paying off any outstanding debt. The best way to keep the score up is to always pay off your debts on time. You should also keep an eye out for errors in your credit score that could also drag it down. A strong credit score will establish immediate trust between your company and the bank.

Provide Financial Statements

Next, you will need to provide the bank with profit and loss statements, cash flow statements, company tax returns, and checking account statements. The bank needs these documents to determine the health of your business. They may require your articles of incorporation and any licenses your company needs to comply with the law. Depending on the type of lender, these documents may need additional verification. While qualifying for a small business loan, have your document proof ready just in case the underwriters need further evidence to support the business.

Present Your Business Plan

One of the most important things to show the bank is your company’s business plan. This is your chance to advocate for your small business and future plans. A well-thought out and thorough business plan will lead the bank to take you seriously as a borrower. Your business plan should include important financial metrics, industry analysis and product details. In addition to a strong financial profile, a business plan gives lenders a sense of confidence in your business. As you build a relationship with lenders, you can show how you have delivered on your business plan. Present your business plan in a professional manner to convince lenders that your business can handle the additional funds and repayment obligations.

Prepare Personal References

Moreover, business lender may want to confirm your authenticity as the business owner. In order to prevent dealings with unethical business owners, you should have references available. Strong references could give you the final stamp of approval to get the business funding required for growth. When preparing your personal references, ask professional contacts, clients or suppliers who have an established relationship with your business. This way, they can explain that you are dedicated business owner who will uphold the loan agreement.

Before you apply for a loan, there are five steps you can take to ensure you can qualify. Firstly, consider all of your small business loan options and make sure you can meet the minimum requirements. Then, improve your business and personal credit score to build trust in lenders. Prepare company documents to inform the bank of your company’s financial standing. If possible, present your business plan to convince them that you intend to use the loan wisely. Finally, prepare references who can vouch for your ethical business practices. By following these steps, you can successfully qualify for your first small business loan.