As a business lender, I can confirm the unfortunate reality that not all business loan applications will be successful. Thankfully, there are some things you can do to make an approval more likely. In this blog post, I will go over my top tips to make sure your business loan application is a success!
1. Have a Strong Business Plan and Cash Flow Projection
Your business plan and cash flow projection are the true heart of your loan application, and they are your key tools to demonstrate that you have a viable business. If you don’t already have these prepared, have a look at my previous post for a deep dive into how to write a winning business plan.
2. Make Sure You are Eligible
Different lenders have different eligibility criteria and will evaluate your application using their own parameters. Before you apply, make sure you understand what your lender is looking for so you don’t waste your time on an ineligible application. Your best bet is to talk to the lender directly, and you can also check out my post on determining your eligibility for a business loan.
3. Confirm That Now is the Right Time
When is the right time to apply for a business loan? Well, you don’t want to apply too early (because there may be too much uncertainty in your plan), but you also don’t want to apply too late (because lending decisions take time). Here are some things to consider:
When do you need the money?
Hopefully, you have already prepared your business plan and cash flow projection and have a good idea of how much money you will need for your project, and when. If you will need the funds within the next 3-6 months, it’s a good idea to start the process now, especially if you are working with a development lender like WeBC, because we can take a longer time to make a lending decision. If you need the money within the next few weeks, a developmental lender like WeBC is probably not a good fit, and you may need to work with someone more suited to emergency lending. See more about different lenders for small businesses.
Are you reasonably certain about your plans?
Sometimes people contact me about a loan when they’re still not certain about their plans. Maybe they don’t have a location yet or are still waiting to line up a potential supplier.
For a lender to make a lending decision, they will need to assess many factors that go into your business, including things like your proposed location, where you will source your products, and who will carry out any necessary start-up work (like construction or leasehold improvements). If you don’t have all the answers yet, the lender may not have enough information to make a lending decision.
Understandably, there can be times when you don’t want to commit to something (such as signing a lease or purchase order) until you know if you will be able to get a loan. In that case, try to get as far along as you can without fully committing, and check in early with your potential lender to confirm what information they will need.
Are you ready to launch?
If your business is centred around a product or piece of technology, where you’re at in the business development process can be very important to a lender.
For a WeBC loan, you must be able to show that your product is ready to launch—in other words, you can’t still be in the research and development phase. If you are seeking a loan to help with developing a prototype, doing product testing, or other pre-launch activities, it may still be premature to apply with us.
4. Get Your Ducks in a Row
When you apply for a loan, your lender is going to ask (seemingly) endless questions, and you will need to gather a lot of documentation. It can feel overwhelming! If you don’t have the answers ready, it can set you back in the process and may even result in a declined application. Here are some things you should get sorted before you apply:
Historical Financial Statements
Even if you are a sole proprietor operating out of your garage, your lender is going to want to see a breakdown of your historical income and expenses. If you aren’t already working with a bookkeeper and using accounting software, you might need some time to get your books in order.
Your lender will ask for an income statement and balance sheet for past years (if applicable), as well as year-to-date statements that show your results up until the end of the previous month.
Personal Statement of Affairs
Your lender may ask to see a detailed breakdown of your household income and expenses, as well as a list of your assets and liabilities. Time to dig out the bank statements!
CRA Statement of Account
Some lenders who are funded by the federal government, such as WeBC, will check to see that your taxes are up to date with the CRA. If they’re not, it could impact the lending decision. To check, pull a current statement of account, which will show your balance. If you have an amount in arrears, it’s a good idea to pay it off in full (if possible), or make arrangements for a payment plan.
Proof of Product Market Fit
If your business doesn’t have a track record yet, your lender is probably going to ask you for more details about how you know your business has product market fit. In other words, you need to show that people want to purchase what you are selling.
You can do this by doing some primary market research like a survey, showing letters of intent, or providing customer testimonials or letters of support. If you’re a new business, the more support you can demonstrate, the better!
Incorporation Documents (If applicable)
If you are incorporated, you will need to provide some core corporate documents. This may include:
- Incorporation Certificate
- Shareholder Agreement
- Notice of Articles
- Central Securities Register
Other documents that may be requested include:
- Business Name Registration
- Lease agreement (if you rent a space)
- Loan agreements with other lenders
- Quotes for things you plan to purchase with the loan funds including construction quotes for leasehold improvement, quotes for equipment, or purchase orders for a product
- Agreement of purchase and sale (if you are purchasing a business)
If you’re planning to apply with WeBC, please refer to our loans checklist for a list of what we require you to submit with your application.
5. Be Ready to Put in the Work
There is a lot involved in making a lending decision, so when you start the process, you need to be ready to answer questions, prepare or revise additional information, and potentially re-work your assumptions. We often hear from clients that applying for a loan is a lot of work. That’s because it can be a lot of work! But the more prepared you are, the more streamlined the process will be.
6. Make Your Lender’s Job Easy
Lastly, it’s always a good idea to make your lender’s job as easy as possible. That means presenting your information in a clear and understandable way and making it easy to find important data. Where possible, provide excel sheets instead of PDFs, name your files thoughtfully, and if you’re providing a summary of costs, break out each item in a table and sum them up instead of sharing a stack of scanned receipts and invoices. This makes your lender’s job much easier and shows that you are organized.
While there’s no way to guarantee approval when you apply for a business loan, I hope these tips will give you some new ideas to help you put your best foot forward.