Every business requires working capital to flourish, expand or make profits. To fulfil the need of working capital, businesses tend to opt for a short term or a long-term business loan. This helps a business to retain its capital reserve while achieving its business goals.
Securing a business loan often comes down to having the right preparation. Your business may have good profit and decent credit, but without the right planning, you still might not get the required business loan.
Incorrect planning may lead to business loan rejection
Here are a few common reasons behind a business loan rejection –
- Pending or incomplete paperwork
- The loan amount requested is minimum
- Lack of healthy cash flow
- Previous high debt records
When you apply for a business loan, a lender will always analyse your business plan and eligibility criteria to determine the credit risk. The overall eligibility criteria are set on many parameters and financial institutions will assess the borrower’s requisite records before proceeding with sanctioning a loan amount. https://www.inft.co/blog/sme-business-loan-singapore
The right planning in this direction will help you get a business loan faster. Here are 6 major things to consider before you apply for a business loan.
- Prepare a business plan
You will first need a business plan to convince your lender. The financial institution where you have applied for a business loan will want to know that you are running a credible business and that you have the knowledge and skills required to grow your business. This will be reflected in the business plan you submit. It is advised to include every detail regarding your business, including your goals, competitors, past and projected profits and expenses, market analysis, and how you intend to grow your business. Portray yourself as the best person to complete the mentioned business goals.
- Prepare financial documents
You will have to include all financial documents you can provide for the lending bank or institution. Ensure your current financial records are clear to understand and transparent. Do financial planning and show projected numbers so that your goals are projected clearly and can justify the loan amount. Do include your cash flow, income and balance sheet statements of the past two to five years, and show your estimates for these statements for the next couple of years, considering all seasonal changes in your business and the loan amount you are borrowing. Clear financial statements are the basis of your loan application, hence prepare them with extra care.
- Be clear on the purpose and amount of the business loan
Once you have completed the financial statements and your business plan, you should have a clear idea regarding your goals and the required loan amount to fulfil them. This will help you present your case while applying for the business loan. Do identify what type of equipment you will need, the marketing strategy you will implement, or any other expansion plans to justify the business loan. Research thoroughly to show it to the lender to convince that you are serious about your business.
- Revisit your personal credit history
Verify your credit history before you apply for a business loan. This is important if your business is new and hasn’t had time to be able to build a credit history of its own. The lenders will want to be sure that they are lending a loan to a person who is financially responsible. So, if your credit history is weak, which may hamper your chances of loan disbursal, you may need to strengthen your credit before you apply for a business loan. Many banks or financial institutions may also want to see your bank statements and tax returns for the last year, so you should keep that in mind for the year before you need your loan.
- Be sure of your capacity for collateral
Few types of business loans will require some form of collateral. If you choose this type of a business loan, you will need to have a clear idea of how much your form of collateral is worth. The lending institution will want to know about this and you will have to be sure of its tangible value to secure the loan. Do ensure that you’re not going to default on the loan and lose whatever property you use as collateral.
- Calculate how much this loan will cost you in the end
You will have to commit to a period in which you will repay your loan. Research and find out what kinds of offers various banks and financial institutions will be able to give you and use those interest rates and fees to estimate your repayment amount and period. Read all the terms and conditions attached to each business loan offer before you decide on which one will suit you.
With the above points taken care of, it won’t be difficult for you to approach a bank or a financial institution and apply for a business loan. It is all about you being able to show and convince the lenders that you are a responsible entrepreneur with a clear vision.