Overcoming Loan Approval Fears: Expert Advice for Small Business Owners
Securing a microlending loan can be a game-changer for small business owners. We recently had an insightful conversation with Mark Leichtling, Director of Microlending at UCEDC, who shared valuable tips on loan approval and effective financial management. Here’s what you need to know.
Evaluating Loan Applications
Mark emphasizes the importance of understanding a business’s financial and operational aspects when evaluating loan applications. For existing businesses, profitability is key. “We look at the business profitability. Is the business successful? Is it generating an income for the business owner? Is it a full-time business? A part-time business?” Leichtling explains. He also considers other household income that can support the business during tight periods.
For startups without a track record, the business plan becomes crucial. “We put a lot of faith in the business plan,” says Leichtling. “It’ll show what sort of information and knowledge the potential business owner has about the type of business they want to open up.”
Increasing Loan Approval Chances
Honesty and openness are paramount when applying for a loan. Mark advises, “We don’t want to feel like we’re playing 20 questions, trying to get some basic information. We like business owners who are forthcoming with their financial situation.” Transparency helps lenders assess the true state of the business and make informed decisions.
Personal credit also plays a significant role. Many small business owners mistakenly believe that only their business credit matters. “In the world of small business lending, the business owner’s credit is paramount,” says Leichtling.
We recommend checking out our upcoming workshops to see when UCEDC’s “Your Credit and You” webinar is scheduled to better understand the importance of personal credit and how it impacts your business.
Preparing Documentation
Proper documentation is critical in the loan application process. Leichtling highlights the need for up to three years of personal and business tax returns. Any issues with back taxes should have a payment plan in place, with proof of regular payments.
Financial Management Tips
Effective financial management is vital for improving loan eligibility. Mark advises small business owners to have a good accountant or CPA who understands their business. “We see a lot of tax returns that are self-prepared, and it’s often difficult to believe everything we see in the tax returns,” he notes. Professionally prepared tax returns lend credibility and accurately reflect the business’s operations.
For more information and resources, check out our upcoming workshops and connect with experts directly by clicking here.