Taking out a loan can be a big decision for any business. Knowing whether or not your business is ready and able to take out a loan and pay it back can be challenging to figure out, but there are a few questions you should always ask yourself.
- Am I ready for this new step?
- Do I know which loan is best for my business?
- Is my credit prepared for a loan?
Understand Why You Were Denied
If you know why your loan request was denied, you can do a better job at fixing the cause and getting ready to request a loan again. Due to the Equal Credit Opportunity Act, you have the ability to ask your lender why your loan request was denied.
This opportunity can only be exercised within 60 days of the loan application being denied, so don’t take too long to request the information. Your lender should provide you with details about why exactly your application was denied.
You may be able to determine this information on your own without having to request it from the lender, but if you cannot figure it out don’t hesitate to ask. By knowing where you went wrong, it will be much easier for you to fix the problems in your application.
Am I Ready for the Next Step?
Many consider taking out loans to be a big step and turning point in the life of a business. Due to this, you should always think long and hard before you commit to taking out a loan. Does your company need a loan, or do you want to take one out?
While they can be helpful, the process of paying them back can potentially be damaging for businesses, so make sure that your company can handle loans and that they are needed. If you believe that taking out a loan will allow your business to grow and find more success, then take steps towards securing one.
If your business is going downhill fast and you think a loan might be the way to save it, make sure to consider if it will be enough. Losing a business is already difficult, but it only becomes more difficult if you have to pay off loans on top of it.
Remove the Negatives from Your Credit Report
You now know why your application was denied, so it’s time to look at your credit report as a whole. There are ways to get your credit report for free, so utilize these methods if you can. This process of receiving a free credit report has been made even more accessible due to the Covid-19 pandemic. Suppose there is any information on your report that you feel is inaccurate, you can dispute it and potentially have it removed, which can go a long way towards improving your loan eligibility.
Improve Other Qualification Factors
Two other significant factors are essential when applying for loans: your credit score and debt-to-income ratio. The credit score is likely something you’ve heard of countless times. Lenders will evaluate your credit score to determine if you pose a risk of potentially not repaying your loan. If they decide that you are not a risk, they will likely approve your loan.
A good credit score is typically considered to be 670 or higher. Lenders will also evaluate your debt-to-income ratio. Lenders do not want to give you money if you are already struggling to repay the loans you already have.
Most lenders will be comfortable with any debt-to-income ratio below 36%. If you improve your credit score and debt-to-income ratio, you will dramatically improve your overall loan eligibility, so don’t forget to look at these two factors.
Improve Your Application with Professional Help
The process of applying for funding can be much easier if you work with the right people and lenders. Find help to improve your chances of financing your business with ByzFunder today.