Small Business Administration (SBA) loans are technically government-backed loans. However, this factor does not make access to these funds a free-for-all. Every year, a number of consulting firms are denied these loans for a variety of reasons. Learn how you can help avoid this outcome.
You need to have verified success in the area of consulting that your business is centered around. For example, if you worked for years as a public relations consultant, it might be hard to apply for a loan for a new financial consulting firm. The lender wants tangible evidence that you have both knowledge and experience in the said field.
While business opportunities are fast, when it comes to an SBA loan it's typically best to stick with what you know. However, there is a caveat. While you might not personally hold the experience, you might still qualify if you have members on your staff or partners with this experience.
Again, there are all sorts of consulting firm opportunities, but the reality is that not every niche within the industry is profitable in the long term. The main thing to remember is that the lender wants to be repaid. If you're applying for funding for a business with a low opportunity for success, there is a strong likelihood that you could default on the loan.
For instance, if you want to operate in a highly specialized field, such as social media influencer consulting, label your business under the umbrella of marketing consulting. This will afford you the opportunity of greater business opportunities and make your business more viable.
One of the most important things for firm owners considering an SBA loan to understand is that this funding is not exactly intended to solve emergency cash flow problems. These loans are primarily awarded with the goal of helping an already thriving or promising business grow. For this reason, your application will include a review of your debt utilization ratio.
If you have a high utilization ratio, which means you are using high-amounts of the credit already available to you, the loan might be denied. The lender might look at this status and determine that you are overextended, so repaying the loan might be a struggle. Pay down as much debt as you can before you apply for the greatest chance of an approval.
If you need funding to reach your goals, prepare your business for the application process for the most favorable outcome.