Can't find the funds you need to grow your business?
If you're like most small business owners, you've dreamed of growing your business. Scaling up your operations, hiring new employees, and expanding to new markets is the logical next step for every business.
After all, growth means:
- More revenue
- More market share
The problem:
Securing the funding you need to grow is hard work.
With 82% of businesses failing because of cash flow problems, access to the right type of financing is what separates a business that makes it, from one that doesn't.
Without the right funding, your growth plans will stay just that -- plans.
In this article, you’ll find the exact steps proven business owners use to get the funding they need. These strategies are tried and tested in today's competitive marketplace.
Let's dive in.
You'll learn:
- Why Most Business Funding Applications Get Rejected
- The 5 Types of Business Financing You Need to Know
- How to Position Your Business for Funding Success
- Proven Strategies to Boost Your Approval Odds
Why Most Business Funding Applications Get Rejected
Here's a little-known fact that might surprise you.
The majority of business owners apply for business funding completely wrong.
They make the mistake of thinking that all they have to do is fill out a form, wait a few days, and get the money.
The truth is quite different.
Lenders have specific criteria they look for before they'll even consider your funding application. And if you don't know what they are, you're almost certain to get rejected.
Let's take a look at the most common reasons why lenders say no.
The Real Reasons Lenders Say No
Here are the top reasons that funding applications get rejected.
- Low credit scores -- Most SBA loans require a FICO score of at least 570
- Inadequate cash flow -- Lenders need evidence of sufficient revenue
- Weak business plans -- Vague plans and growth strategies are a turn-off
- Lack of collateral -- Most loans require some type of asset security
Think about it...
If you were the one lending money, wouldn't you want to know that you'd get it back? That's how lenders think.
Understanding what turns lenders off is the first step in learning how to get small business loans approved more consistently. Once you know what they want, you can put your application in a position to succeed.
The 5 Types of Business Financing You Need to Know
Before we dive into the strategies for getting approved, you need to understand your financing options. Not all funding is the same, and it's important to know the differences before you start the application process.
SBA Loans
Small Business Administration loans (SBA loans) are the gold standard for small business funding. In 2024 alone, more than 40,000 SBA loans worth over $18 billion were approved by the end of March.
SBA loans are so popular because:
- Interest rates are low (currently 10.50% to 15.50%)
- Repayment terms are long
- Lenders take on less risk thanks to government guarantees
But there's a trade-off...
SBA loans have some of the strictest requirements and longest approval times. They're not a good option if you need the money in a hurry.
Traditional Bank Loans
Bank loans offer competitive rates for small businesses that are already established. Recent stats show that 70% of small business loans are from banks with less than $250 billion in assets.
Bank loans work best for businesses that:
- Have strong credit histories
- Have existing business relationships
- Have collateral to secure the loan
Alternative Lenders
Online lenders are quickly changing the business financing landscape. The digital business lending market is expected to be worth $20.5 billion by 2026.
Alternative lenders have these advantages:
- Quicker approval times
- Easier requirements
- Higher approval rates for newer businesses
In exchange for this flexibility, they charge higher interest rates than traditional banks.
Equipment Financing
Businesses that need to buy machinery or equipment may find equipment financing is a good fit. Equipment loans are one of the highest approved business loans with 73% of all applications fully approved.
Equipment financing has these benefits:
- The equipment itself can be used as collateral
- The interest rates are typically competitive
- You can preserve your working capital
Business Lines of Credit
A business line of credit offers a revolving source of funds when you need them. You only pay interest on the amount of money you draw, making it ideal for smoothing cash flow peaks and troughs.
Lines of credit are great for:
- Seasonal businesses
- Paying for short-term expenses
- Jumping on opportunities when they arise
How to Position Your Business for Funding Success
Approval isn't a game of chance, it's a game of preparation.
Here's what you need to do to put yourself in the best position.
Build Your Business Credit
Credit is just as important for your business as it is for your personal finances. To build business credit, make sure to:
- Open up business accounts in your company's name
- Pay all your bills on time
- Establish credit with suppliers
Create a Solid Business Plan
Lenders need to know that you have a responsible growth plan in place before they'll invest in your business. Your plan should include:
- Growth objectives
- Financial projections
- Market analysis
- Risk mitigation strategies
Remember: Vague plans are almost certain to get rejected. Get clear about your goals and precisely how the funding will help you reach them.
Prepare Your Financial Documents
Don't leave any paperwork until the last minute before you apply. Have all of these documents to hand and ready to submit.
- Tax returns (both personal and business)
- Financial statements
- Bank statements
- Cash flow projections
Organization matters. It demonstrates your professionalism and speeds up the approval process.
Proven Strategies to Improve Your Approval Odds
Here are insider secrets that the businesses that do it right are using to get approved.
Apply to Multiple Lenders
Don't put all your eggs in one basket. Since different lenders have different requirements, one lender's rejection might be another's full approval.
Here's how to approach this strategically:
- Research 5-10 potential lenders
- Compare their requirements and offerings
- Apply to several in a way that maximizes your chances
Consider Working with Financing Experts
Help is available in the form of financing companies. Companies that specialize in business financing know lenders' requirements and can work with you to find the right funding source.
Time Your Application Appropriately
Timing is more important than you might realize. The ideal time to apply for funding is when your cash flow is strong, you have some recent positive financial statements, and interest rates are at a historic low.
Start Small and Build Relationships
If you're a new business, consider starting with smaller loan amounts. Smaller loans are easier to pay back. Successfully paying off smaller loans builds your credit history and relationship with lenders. This makes it easier to qualify for larger amounts in the future.
The Hidden Costs of Business Financing
Beware of the fine print! When you're comparing offers and considering how much to borrow, don't just look at the interest rate.
Dig deeper to discover the total cost of financing.
Interest Rates Aren't The Whole Story
Remember these hidden costs when calculating the true price of business financing.
- Origination fees
- Processing fees
- Guarantee fees (for SBA loans)
- Early payment penalties
Before accepting any offer, calculate the total amount you'll have paid over the life of the loan. A loan with a slightly higher interest rate but lower fees might be cheaper.
Wrapping It Up
Access to business funding is what makes the difference between businesses that grow and those that stay stagnant.
Securing the funding to take your business to the next level isn't easy, but it's not as hard as you think either.
The key things to remember are:
- Rejections are often due to business owners applying in the wrong way
- Don't know your financing options? You'll never choose the right one
- Position your business properly before you apply for funding
- Don't forget to use these proven strategies to stack the odds in your favor
Business financing is always changing, with new options appearing all the time. But the fundamentals of strong credit, a solid business plan, and a clearly defined growth strategy always remain the same.
Begin by understanding where you currently stand financially. Then choose the type of business funding that most closely matches your situation and time frame. Remember, the right funding, at the right time, can make all the difference.
