Regardless if your business has been around for a few years or you just launched it a few days ago, you will likely need to get a business loan at one point or another.
While applying for a loan may seem complex and daunting at first glance, it is reassuring to know it’s not exactly rocket science.
True, you would need to know more than just the SME bank loan interest rate and you most likely need to present more than just one document to seal the deal.
However, as long as you ask the right questions, you pretty much have all the essentials covered.
Snag that business funding you need by asking yourself the following essential questions:
What are the loan specifics? This part might seem complicated but it does not have to be. You just need to make sure you have all the basics covered. In other words, you have to know more than just the SME bank loan interest rate.
You also need to take into consideration other key components like repayment scheme, amount of monthly repayment needed, and the exact date for the payments, among others.
Also, check if it’s feasible to set up automatic payment from your company’s business account if that is a more convenient option for you. As a general rule of thumb, make sure you and the creditor are on the same page so your transactions will be smooth sailing.
Will the loan help my business grow? If you will borrow $20,000 to cover payroll or some other routine operating expenses, you obviously won’t be generating any revenue from the loan. In most instances, you’ll likely end up in the same spot in a few months.
Ideally, money you borrow should be spent in areas that will help generate profit and help the business grow. Case in point: if you pour the money in marketing and sales—with a dollar investment earning $5 in return—then you are doing it right.
How much do I need? Prior to approaching the bank or any financial institutions, you need to decide how much you really need. The best way to gauge the amount is to make a monthly cash-flow projection.
Do you need to pay your loan in 15 days but your customers won’t be paying till then? If such is the case, you’ll be needing money to tide you over.
You won’t be making a favorable impression if you come asking for a $10,000 loan and when the creditors check your cash-flow projection, they’ll find out you actually need more than the amount you specified.
Maximize your chance of getting the loan by knowing how much you need and how you are going to use the funds.
Will I be able to repay the loan? Do you have enough cash flow to repay your obligations promptly? In some instances, your creditor will be asking you to provide financial projections for your venture. Ensure that you include your debt repayment plan.
Understandably, creditors would favor those businesses with enough “wiggle room.” In other words, you should have cash flow enough to adequately cover your repayment obligations. If your projections indicate you have little room for error, there is a big chance you’ll scare your creditors away.
Do I have all the documentations needed? Some studies show that four out of five loans do not materialize not because of qualifications but because of paper chase.
To ensure you do not become part of the statistics, always have all the needed documentations handy. For starters, have your personal and business tax returns (for the last 3 years) and your personal financial statements readily available. Also, create a financial projection for the next 12 to 24 months in case you will be asked to provide one.
Getting business funding is not as complex as it seems. Given that you come prepared and do the necessary legwork, you’ll have a bigger chance of getting the help you need to steer your business in the right direction.