Small Medium Enterprises (SMEs) are often regarded as the engine of an economy, however, many new business owners get frustrated when it comes to the process of business financing, which is an essential aspect of growth or sustenance.
All too often, SMEs get “road-blocked” when they try to obtain business loans. Theoretically, there should always be a certain level of difficulty when it comes to funding, as we all know that lenders are in the business for making profits, not charity. However, the good news is that there are many avenues and measures that can be manipulated to increase the chances of getting a business loan.
Here are some things to consider.
- Financier’s perspective–why should a financier offer you a loan?
Apply for a loan like as though you were applying for a job. When applying for a job, you need a great resume. Likewise, when applying for a business loan, you will need a proper track record for an application as well. It is essential to understand the financial strength and situation of your company to the last detail. As a backup plan, that may even mean deciding what resources can be used as collateral, such as a commercial or residential property that you or the company owns. Any business person who is willing to put up collateral clearly shows that he/she believes in his/her business. However, before deciding on collateral, a business owner should understand that cash flow and credit quality are 2 of the greatest factors that all banks and financial institutions base their credit assessments on. Therefore, always ensure that there is a healthy level of cash flow in the company, and do not delay or default on payments to the banks. As a bonus, always try to dress professionally as well. Dress like you don’t need the money, and you are more likely to get it. Lenders like lending to people who already have money.
- Decide how much your business needs!
All too often, business owners tend to apply for a loan quantum that is way more than what they really need. Assess and project for future cash flows, then get an amount that you are comfortable and confident of paying back on time.
- Learn from your mistakes.
If a loan application with a bank or financial institution gets rejected, always try to find out why! It can be difficult sometimes because of the ‘Banking Secrecy Act’ that prevents the bankers from revealing vital information. However, if you are lucky enough, there are some kind bankers who will tell you the reasons for a rejection. This way, you can address the deficiency before going to the next bank or institutional lender.
- If all else fails, use receivables (invoices) as collateral.
Most business owners have a tendency to gun for the big and juicy unsecured business loans. However, when an application does not go through successfully, they lose all hope, forgetting that there are other ways of raising finances. An example would be the alternative lenders, such as the crowdfunding platforms, who will charge significantly higher interest rates, but tend to be more relaxed in their requirements and credit assessments.
- Always consider working with Corporate Loan Brokerages.
If anything at all, always consider seeking help from the people who know the financing industry best. Being a part of the intricate financing industry, loan brokers know the ins-and-outs of the business. While many businesses inaccurately assume that they will not be eligible for business loans, a loan broker could help to re-structure and optimize an application, which will enhance the chances of obtaining the loan.
- Know your facts.
That means finding out the effective and simple interest rates of the business loan. Understand the repayment conditions, prepayment penalties and what the fees will be. It is always better to be informed.
Which points did you agree with? Any other points that you would like to add? Please add them to the comments box below!
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