We all know it — starting a business is exciting. There’s nothing quite like watching your idea become a reality. You develop a plan, laying out every aspect of your operations. The more your idea evolves, the more you start thinking like a business owner. At some point, you will need capital to grow. To pursue a business loan, you need to stop thinking like a business owner and start thinking like a lender. Walking in their shoes will help you prepare for a loan application and give you a better chance of getting a loan. To get a loan approval for your small business, try the following tips. #1. Start early Don’t wait until you absolutely need capital to apply for a loan. Loans take time to get approved, and sometimes you are denied a loan. You don’t want to reach a point where the extra capital will make or break your business. Usually, the application process for a small business loan takes at least 60 to 90 days. This time allows for all of the paperwork to be filed and reviewed. Give yourself plenty of time to fill out a loan application by applying when your business is doing well. #2. Improve your credit score Both your personal and business credit scores play a part in loan approval. Your credit history tells lenders how well you manage money and how likely you are to pay back the loan. The higher your credit score, the less risk you pose to financial institutions. You can get one free credit report from each of the three major credit reporting agencies per year. Find out your credit score, and then take steps to improve it before speaking with lenders. To improve your credit score, update your company profiles on credit bureau websites. Pay your bills on time for more than the minimum amounts due. Also, separate your business and personal expenses into different bank accounts. #3. Find out how much you need Small business loans come in different amounts. You do not want to ask the lender, “How much can I borrow?” Instead, calculate exactly how much you need If you ask for too little, you won’t be able to accomplish your goal. If you ask for too much, you end up paying interest on capital you don’t need. Add up all the expenses you expect to incur, including operating expenses, overhead expenses (don’t forget the loan repayments), and living expenses. Then, project how much you will make in sales during the same time period. The difference between the two amounts is how much you need the loan to be. #4. Create a cash reserve When you take on a loan, it’s important to know you can make repayments. A cash reserve helps ensure you do not get behind on paying it back. A cash reserve is an emergency fund for your company. You can use the reserve when funds are unexpectedly low, but you need to make payments. Lenders like to see that you are prepared for repayments and have cash on hand. Open a business bank account and start saving early. #5. Polish up your business plan Part of acquiring a loan is providing lenders with a business plan. The plan should detail your business, how you will spend the capital, and how much growth you expect. Your goal with this document is to convince lenders you are creditworthy. Financial institutions don’t like risk. They want to know you have a strategy for the funds they lend you. Your business plan should be a compelling argument for your ability to use the funds wisely. Learn how to write an effective business plan to present to lenders. #6. Prepare necessary documents In addition to a business plan, lenders want to see other supporting documents. These documents include past tax returns, financial statements, and partnership agreements. Organize your business documents into a report and be familiar with the information. That way, you can answer questions quickly and confidently. #7. Calculate your risk Some businesses are riskier for financial institutions to lend to than others. Doing a small business risk assessment gives you realistic expectations for the loan. It will also help you build a better case on your application and speak informatively to lenders. Small businesses tend to have a higher level of risk. Factors that increase your risk include little collateral, low revenue,new business status, unorganized records, and poor credit. Identify the areas of your business that pose greater risks and make improvements. #8. Network with lenders One key to getting a business loan is to establish relationships with lenders. Financial institutions tend to trust borrowers they know. Foster a relationship with the financial organization you want to borrow from. Banks offer much more than loans to small business owners. Use the various services at a financial institution to form relationships. You can open bank accounts and a credit card for your business. #9. Know how you’ll pay back the loan Answering how you will repay the loan takes more than a vague explanation. You need a detailed plan for making on-time repayments. The bank will likely ask you before granting the money. Use sales projections to determine how much you expect to earn during the life of the loan. By subtracting expenses, you can determine what monthly payment amount fits your budget. Be able to tell lenders your marketing and sales strategies, as well. #10. Research loan types There are many different kinds of loans available. You need to know which loan type you should apply for. The loan you get is based on how much money you need, what you use it for, and the type of business you run, among other factors. The following are common loans: Term loans are lump sums that you pay back over a set time period (short term or long term). SBA loans are backed by the Small Business Administration. Lines of credit have limits, and you only repay the amount you use. Equipment loans help you finance new and used equipment. Alternative financing, like crowdfunding and peer-to-peer loans, are not from the bank. Each loan type serves a different purpose, and some are worth more than others. Depending on the loan, you will receive different term lengths and interest rates. Improving your chances of getting a loan For a small business owner, securing a loan isn’t easy. But, you can improve your chances of getting a loan with the tips listed above. If you find yourself struggling to get approved, keep your chin up. Improve your operations and application strategies to find the right capital solution for your business.