How to make your loan profile better

If you have a business or are planning on starting one, chances are at some point you have taken out or will need to take out a loan in order to help fund your business start up, operating costs, or day to day expenses.

When applying for a business loan, your lender will take a number of different aspects of your loan profile into consideration.

Because competition for business loans is fierce and because lending practices are stricter now than ever before, you will want to make sure your loan profile is in good shape before applying for a business loan. The following are some tips on how to make your loan profile better:

• Check your credit. Many people apply for loans assuming that their credit is good or excellent. However, some people are in for a shock when they find out their credit is less than they expected. You can save yourself some time by checking your own credit before applying. This way, you have a better idea of the things you need to work on or fix before applying for a business loan.
• Don't apply from too many lenders. You can improve your loan profile by avoiding shopping around at too many different lenders. Each lender will run your credit, and multiple credit inquiries will hurt your credit, as it looks like you are applying for a number of different loans or lines of credit. Apply for loans from lenders you already have relationships with.
• Avoid co-signing. While it's a nice gesture, if you plan on applying for a business loan in the near future, avoid co-signing for friends or family members. This can help to make your loan profile better in a number of ways. Some people don't realize that by co-signing, your credit is also impacted. Even if the payments are made on time, the debt still goes against your debt to income ratio.
• Maintain revolving lines of credit. Paying cash for everything is great, but not if you want a better loan profile. You will have to prove that you can manage debt and make payments on time with revolving lines of credit. Maintain at least two or three, such as a mortgage, car loan, or credit card, and make sure you make your payments on time.
• Be prepared. Your loan profile will look better if you go prepared. Make sure all applications are filled out and you have all necessary supporting documentation as required by your lender. You should also be prepared with a well-planned and well thought-out business plan that details your proposed business's financial plan.
• Consider consolidating. You can also make your loan profile better by consolidating some or all of your personal loans. This will free up some of your cash flow, and also strengthen your loan profile.
• Set up automatic payments. You will never miss a payment and will in turn improve your credit and loan profile by setting your bills up to be deducted automatically. Many banks provide this service for free, so it's a good idea for you to take advantage of it.

When applying for a business loan, you will need a strong loan profile. These tips will help you to make your loan profile better and give you an advantage in the business loan application process.