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Updated: March 27th, 2020
Love comes in many forms. Romantic partners fall in love for bizarre reasons, including pheromones and symmetry. Thankfully, business partners look for less mysterious things. Connecting with an attractive financial company is more straightforward than wooing a potential love interest. Here’s how to make yourself irresistible to any small business lender.
A good relationship is a two-way street. Know that not all lenders will be able to meet your needs, and vice versa. Check out their requirements, ask questions, and look for previous clients. What do they look for when it comes to years in business, annual revenue, and credit score? You don’t want to waste your time—or theirs—on a relationship that’s doomed to fail. Compatibility is key.
A rocky past is a lender’s biggest turn-off. Lenders look for a long history of timely payments and steady growth. They’ll check your credit report to see if you’ve ever defaulted on payments or declared bankruptcy. They’ll check your personal credit score and business credit score. They’ll check your bank, investment, and credit card accounts. Make sure your relationship with past creditors is squeaky clean so they can put in a good word for you. Nothing boosts a lender’s perception of you more than a glowing history with other lenders.
Lenders love those who know their limits. If you’re looking for a debt way bigger than you can pay off, a good lender will reject you. They don’t want to see your business buckle under the weight of a huge loan. Lenders must do their own analysis of your debt service coverage ratio, cash flow, and more to decide whether or not to give you loan. But if their calculations confirm that you knew exactly what your business could handle all along, they’ll see you in a whole new light.
You must be ready to put some of your most valuable things on the line. Most small business loans require collateral or a lien as a safeguard. Collateral usually consists of assets like land, real estate, or machinery. Most small business owners put up personal property as a guarantee. Unsecured, collateral-free loans do exist—but, they require a higher credit score and often come with a higher interest rate.
Sparks tend to fizzle without trust. All five steps ultimately build that trust, there are ways you can step up your game and exceed expectations. Instead of being content to show your internally-generated financial statements, get them reviewed or audited by a certified professional. Show that you’re thinking about the future by showing your business plan, complete with realistic financial projections. Rent instead of buy equipment to show that you know how to keep your cash flow in check. Invest your own money into your company to prove that you’re as invested as the lender.
Follow these steps and you’re likely to land a happy, long (or short) term relationship with a desirable lender.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.