Strengthen your application profile

Leverage your existing financial relationships

Small businesses continue to face challenges beyond their control. In the past year alone, they’ve weathered increasing prices, high interest rates and stricter credit standards. Despite these obstacles, many entrepreneurs are moving forward with plans to get much-needed financing.

In fact, 67% of U.S. smallbusiness owners plan to pursue funding for their business within the next 12 months, according to a new Nerdwallet survey conducted online by The Harris Poll among 335 smallbusiness owners.

Accessing financing during an ever-changing economic climate, however, can be difficult and expensive. While a loan can help fund the purchase of new equipment, stock shelves, hire employees and otherwise help a business survive or even thrive, it can also become a burden if payments become overwhelming.

Here are three tips to help small-business owners find and get the most affordable capital right now.

Nearly half (45%) of small-business owners plan to pursue a traditional term loan in the next 12 months — and 18% are specifically looking for a bank loan, according to the survey.

Bank business loans tend to offer long repayment terms and low interest rates, but can be difficult to qualify for — especially since lenders have tightened their credit standards over the past year. Getting a bank loan isn’t impossible, however.

Some banks, especially local or community institutions, may be more flexible with their qualification requirements or offer other benefits, like interest rate discounts, if you already have a relationship. Consider starting your bank loan search with the institution that administers your business bank account or one that has issued you a loan in the past.

With or without an existing financial relationship, applying for a smallbusiness loan can be intimidating: 17% of smallbusiness owners are concerned about being rejected for the funding they need for their business in the next 12 months, according to the survey.

To improve your chances of approval, you can:

• Build your credit score: A strong credit score shows lenders that you repay your debts. In general, the stronger your credit history, the better loan rates and terms you’ll receive. To build your credit score, you can look for errors on your credit reports and dispute them with the appropriate credit bureau, make debt payments more frequently and pay down or pay off existing debt.

• Offer collateral: Traditional lenders, like banks and credit unions, may require you to secure your loan with collateral. Offering additional collateral (e.g., equipment, inventory, real estate) — or providing it when it isn’t required — can help bolster your loan application, as it offsets the risk a lender faces when working with your business.

• Double-check your paperwork: When you complete a loan application, it’s important to verify all requirements and read each question carefully. Providing incorrect or outdated information can significantly slow down the application process — and sometimes result in an automatic rejection.

If you’re applying for a loan online, for instance, and the lender uses automated underwriting technology, inputting inaccurate data can trigger a rejection regardless of the strength of your credentials. Before submitting your application, it can also be helpful to ask an employee, partner or business adviser to review it.

Seek expert advice

Although banks remain the most common source of credit for small businesses, there are many other funding options entrepreneurs can consider, including online loans, small-business grants and equity financing. Twenty-one percent of small-business owners, however, say understanding all of the financing options available to them is a concern for their business in the next 12 months, according to the survey.

To help guide your funding search, it can be useful to work with a free or low-cost business adviser through an organization like SCORE or your local small-business development center. Experts from these organizations can help you organize your finances, compare funding options and even prepare and submit loan applications.

Some lenders, like community financial development institutions (CDFIS) and nonprofit organizations, offer similar advisory services, in addition to their own loan options.