November 13, 2012

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According to U.S. Small Business Administration reports, the value of U.S. small business loans declined 6.9 percent last year. The New York Federal Reserve found that only 13% of small business applicants received the full amount of credit they had applied for, and another 36% only received a partial amount.

According to the FRBNY Small Business Borrowers Poll, “The credit profile of unsuccessful applicants included young age (5 years or less in business), weak sales performance, and infrequency of strong bank relationships.”

With so many small business owners losing out on traditional funding, it’s important to be prepared when apply for a small business loan.

Here are five simple steps every small business owner can take to develop a solid business loan application.

1. Forge a Relationship with Your Bank

Establish business’ credit history by opening a business checking account and applying for a business credit card. The bank should already know who you are, what your small business is about, and how well it’s functioning before you ever step into the business loan office. Loyalty to your local bank can help your company’s credibility and increase your likelihood of receiving a small business loan.

“Somebody who has been in business two or three years, who has a checking account, should take advantage of at least that relationship,” says Lisa Oliver, Northeast regional sales manager for KeyBank.

“If we have a checking account client, we need to keep track of that client. The last thing we want to have happen is for that person to decide to get a loan somewhere else.”

2. Check Your Personal and Business Credit Report

Your credit report will play an important role in the loan acceptance process. Six months to a year before you place a business loan application, order your personal and business credit reports and check them for errors.

According to the Federal Trade Commission, “AnnualCreditReport.com is the only authorized source for the free annual credit report that’s yours by law. The Fair Credit Reporting Act guarantees you access to your credit report for free from each of the three nationwide credit reporting companies — Experian, Equifax, and TransUnion — every 12 months.”

Fix any inaccuracies you find, no matter how minor. If you are maintaining high balances on personal or small business credit cards, pay them down as soon as you can, starting with credit cards that have the highest interest rates.

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