5 Ways To Improve Your Odds of Getting a Small Business Loan

Note: This article was updated in 2022.

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.

Applying for a small business loan can be a daunting and discouraging process — which, given the statistics on approval rates, is understandable.

But there are things you can do to potentially improve your odds of getting a small business loan from traditional financing sources. Below, we walk you through what you might need to button up before beginning the small business loan application process. (As an alternative, Square Loans offers access to small business financing that doesn’t require a lengthy, complicated application process.)

Here’s how to get a small business loan.

Gather and organize all your business documents

Regardless of the type of loan you’re looking for, there are several documents you should have in place before applying for a traditional loan from a small business lender.

Here are the documents you should have at the ready (note that lenders may vary in the materials requested):

  • Written business plan
  • Profit and loss statements and projections
  • Business and personal credit scores
  • Tax return documents
  • Bank statements
  • Copies of relevant legal documents, including articles of incorporation, contracts, leases, and any licenses and permits needed to operate

Even if you’re not in the market for a government loan, you can check the Canada Small Business Financing Program for a complete small business loan checklist.

Learn more about Square Loans.

Get a loan to grow your business.

Know how you will use the money

Just saying “I need money to grow my business” is probably not going to cut it. Before you decide to apply for small business financing, make sure you know what you’re going to use it for exactly.

A specific idea about where you’re going to put your funds to work — and how that use will help your business grow in the long and short term — is something small business lenders want to see. Getting clarity here will also help you analyze factors like interest rates and loan terms so that you can land on the right loan for your business.

Create a rock-solid business plan and register your business name

Many lenders want to see that you’ve thought carefully about your growth and operations strategy. That’s why a rock-solid business plan is such a crucial document in the small business financing process. Lenders may look to your business plan to help them determine whether or not you’ll soon be in a position to pay them back.

You also want to ensure that you’ve registered your business name properly. You can’t get a small business loan without registering your business with the Canada Revenue Agency (CRA).

While qualifying for a loan through Square Loans doesn’t require a business plan, having one in place is a great idea for any small business, especially when you’re just getting things off the ground.

Make sure you have good credit

Bad credit makes it harder to get a small business loan. Square looks at whether or not you’re a healthy, growing business as part of the approval process. Your credit score is a top factor for many lenders when they decide whether to accept or deny your loan application.

Generally, banks may look at both personal and business credit scores — so make sure that in both arenas, you’re making payments on time, spending well under your credit limit, and keeping accounts open. Also, if you have no credit history, that could prove problematic for some lenders.

Have a handle on your cash flow

Cash flow issues are a top pain point for small businesses, especially those with large, upfront operational costs and equipment. But if you’re applying for a small business loan, you want to make sure you’re consistently staying above water with your cash flow.

This is especially important in light of your debt-service coverage ratio (DSCR), something many lenders look at when deciding whether or not to approve your application. Essentially, a DSCR is the ratio of cash a business has readily available for servicing its debt. It’s a mathematical equation that lets lenders know whether your business will be able to pay them back (which is, of course, the top-of-mind question).

About Square Loans

Getting a small-business loan can be a complicated process — but it doesn’t have to be. With Square Loans, there’s no lengthy application, qualified sellers can get funds as soon as the next business day upon approval, repayment happens as a fixed percentage of your daily card sales, and the cost of the loan is a fixed dollar amount that never changes.

We want to make getting access to the funds you need to grow your business as simple and easy as possible.