Tips for Small Business Success: How to Qualify for a Small Business Loan

Improve your chances of qualifying for a small business loan by knowing your funding options, and how lenders view your application.


One of the biggest moments for many small businesses is the day they receive funding. It’s confirmation that you’re on the right track and that someone believes in your business. 

Unfortunately, rejection rates for small business loans can be as high as 43-73%, depending on the lender. Even worse, about a quarter of those who are rejected for funding are never told why their application wasn’t approved. So what can you do to improve your chances of qualifying for a small business loan?

Lenders are in the business of risk management. If you’re looking to qualify for a small business loan, the best way to improve your chances is to use their preferred metrics. This shows lenders that your company is a safe bet. 

Take steps to maximize your likelihood of being approved for funding with these helpful tips:

Improve Your Credit

One of the first factors lenders look at is credit. Until you build business credit, your personal credit is your business credit. Even with business credit, lenders will often look at both. Strengthening your personal credit is always a good place to start.

Got your personal credit under control? Now it’s time to build business credit. Building business credit protects your personal credit, and helps small businesses get approved for loans with better terms.

To build business credit, file your business as a separate entity (if you haven’t already) by incorporating or forming an LLC. Open a checking account in your business’ name, as well as a business credit card. Be sure to use your business checking account to make payments on the credit card. 

Securing a line of credit can also help you build your business credit. It’s a source of additional funding to work with like a loan but provides more flexibility, and you only pay interest on what you use. A smart way to do this is to use your line of credit to finance regular recurring business expenses, which makes expenses easy to plan for while building up your business credit.

Pay attention to your business’ credit report, as errors can certainly pop up. Keeping an eye on your credit report will help you make sure your score is as high as it should be. And, of course, pay bills and invoices on time and in full.

Strengthen Your Cash Flow

Cash flow is the number one factor that lenders will consider when you apply for a small business loan. Simply put, lenders want to be sure you’ll be able to cover business expenses as well as loan repayments. 

Time in business comes into play here, too. Traditional lenders want to see a positive cash flow over one or two years, preferably with an increasing cash balance. Dips into the negative can be a red flag for lenders, and an increasing bank balance shows lenders that your business is steadily growing. 

A little newer in business? Strong cash flow can go a long way with alternative lenders, who often look at as little as three months of transactions. Even if you’re still building your business credit, strong cash flow can get your foot in the door, especially with alternative lenders. 

The first step to managing a healthy cash flow is knowing what’s coming in and what’s going out of your business. FINSYNC’s intuitive online tools make it simple to visualize and analyze past, present, and projected cash flow.

Depending on the strength of your cash flow, a lender may require collateral as well. Traditional lenders are more likely to want some form of collateral, whether personal or business assets, such as real estate, savings, equipment, or even an auto title. Alternative lenders are much less likely to require collateral, especially if your business has good credit and strong cash flow. 

Choose the Right Loan

How do you know what type of loan is right for your business?

Term loans are what most people think of when they think of a traditional bank loan. If you’ve been in business for over 2 years and have maintained a positive cash flow and a good credit score, this could be the right loan for you, especially if you’re looking for a large amount. Traditional lenders tend to prefer loans that are over $250,000.

Traditional loans can be difficult to qualify for, but fortunately, there are plenty of other options for small businesses. Need new equipment for your business? With an equipment loan, the equipment purchased is the collateral, so these loans are often more accessible for small businesses who don’t tick every box when it comes to traditional loan requirements. 

Invoice financing is another option for small and newer businesses, and may be especially helpful with longer pay cycles. With invoice financing, you’re able to borrow money against what you’re owed by customers who you’ve already invoiced for services. 

The Small Business Administration offers SBA loans to help businesses that have trouble qualifying for a term loan, with very low interest rates. SBA loans are especially worth looking into for companies seeking a micro loan of 50,000 or less. With such great terms, these loans can be extremely competitive. 

A Lifeline for Small Businesses

Alternative lenders are a great option for new and small businesses as they’re generally willing to take on greater risk, and have less stringent requirements than traditional lenders. For example, many alternative lenders will look at just 90 days of cash flow rather than the 12-24 months required by traditional lenders. 

Alternative lenders commonly lend smaller amounts as well. Even well-qualified companies may get rejected for a traditional loan if the amount requested is too little. 

FINSYNC’s lending network allows you to apply for different types of loans with a variety of lenders from one simple application. Lenders are able to access your past, present and projected cash flow through FINSYNC’s technology to make informed lending decisions, and as your cash flow improves, your access to additional capital increases.

Helping small businesses is our core mission at FINSYNC.

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