When applying for a business loan, there are many actions the applicant can take to increase their chance of being approved. One way is to discuss the requested amount with the lender at the beginning of the process.
Funding sources often ask the borrower for “the amount of the request”. Borrowers sometimes get declined by asking for too much.
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Time in Business – The longer the time in business, the higher the requested amount can be for. If the time in business is less than 2 years, amounts over $25,000 or $50,000 become difficult and are the maximum that should be considered in most cases.
Business Revenues – The amount of revenues a business generates is a big factor in determining the amount the business should apply for. For example, a business that has $150,000 in revenues has virtually no chance of being approved for a $250,000 loan request with the vast majority of lenders. $25,000 to $50,000 maximum would be in line with what a lender would consider for a company with annual revenues of $150,000.
Personal Credit – For most businesses, the owner(s) of the business must sign at closing on the loan and their credit will be reviewed. Often, the stronger the personal credit is, the higher an approval will be for.
Business Credit – Business credit is often looked at. If you know that the business has good business credit, a higher amount can be applied for. Business credit files can be accessed at business credit reporting agencies such as Dun & Bradstreet, Experian Business credit and Paynet.
Financial Statements – For many business loan requests, the lender will ask for financial statements. This is often called financials, or full financials. It almost always includes the last 2 years complete business tax returns. It may also include 2 years personal tax returns, a current personal financial statement, an interim year profit and loss statement with balance sheet and the last 3 months business checking account statements. Lenders will look at the returns to determine Gross Revenues and Net Income. If these statements are strong, a higher amount can be requested by the applicant.
In summary, when applying for a business loan, consider the factors above in determining how much to apply for. Applying for the right amount will often assist your business in securing an approval for the amount it needs.