There is encouraging news for small business owners looking to borrow money this year. Alternative lender Biz2Credit reports that its latest Small Business Lending Index indicates that small business loan approval rates by big banks and institutional lenders reached post-recession highs in December.
According to the Index, which is a monthly analysis of 1,000 loan applications on Biz2Credit.com, big banks (those with 10+ billion in assets) approved 21.1% of small business loan requests in December. That’s up from 20.8% in November, marking back-to-back months of increases. Even more encouraging, a year-to-year comparison shows that lending approval rates at big banks are up nearly 20%.
Institutional lenders – pension funds, family offices and bank credit facilities – are getting behind small business owners even more than big banks. In December, institutional lenders granted 60.1% of their small business loan requests, an increase from 59.9% in November. Since Biz2Credit began monitoring this category in January 2014, approval rates have been trending upward.
The situation is not as positive at small banks. For the seventh consecutive month, small banks are denying more than half of their loan requests. In December, small banks approved 49.7% loan requests from small business owners, down slightly from 49.8% in November.
Before you apply
Even with banks and institutional lenders more eager to lend to small businesses, there are a number of things you want to do to increase your chances of getting a loan. In “4 Tips for Getting a Business Loan,” running in Inc., Marla Tabaka advices to get your “financial house in order” before approaching a bank. Since most banks look for three years of profitability when considering a business loan, keep an eye on your credit score for anything that might be a red flag.
You also need to be able to convey why you need the loan and make a strong case, says Tabaka. Needs range from expanding real state and operations; purchasing more inventory and equipment, including new technology such as on premise unified communications or VoIP phone systems; or increasing working capital to manage day-to-day operations. Whatever the purpose, make a strong case for your loan by talking about your past successes and future strengths. If your industry is experiencing growth and you want to be part of it, make sure to talk about that.
The Small Business Administration (SBA) says that different lenders may require more or fewer documents, but in general, you will need the following information when you approach a lender:
- Personal and business credit history
- Personal and business financial statements for existing and startup businesses and as well as a projected financial statement
- Strong, detailed business plan (including personal information such as bios, education, etc.)
- Cash flow projections for at least a year
- Personal guaranties from all principal owners of the business
Money may be flowing more freely to assist your small business growth needs. Still be prepared to make a strong case when you meet with lenders.