Do you have a great business plan and wondering where to start? Are you on the verge of starting a new company and worried about financing? Business is basically a very huge investment by means of efforts, knowledge and finance. All the three aspects of this hold equal importance for the success of any business. It is true that not everyone will have enough capital to start a business. Many will start with the initial capital that is available and for further requirements loan or different options are considered.
Again getting a loan approved for business is not as easy as getting a personal loan approved. Banks will do a lot of scrutiny before applying a business loan and in most of the cases they would even demand for collateral/ security to approve loan. These business loans are requested usually for huge amounts. Here are six simple ways to help you to get a business loan approved within the limited time available.
- Detailed, Well Thought and Comprehensive Business Plan:
Every bank manager who looks into the business loan application will be keen to know everything with regard to your company, about yourself, income stability, repayment capacity, company staff strength, client references and more. Apart from these, banks will also look into what type of product or services is rendered through your business. Unless there is clear information and the purpose of business is legal and legit, business loan will not be approved by the banks.
Apart from these, you should have answers for these questions. Bank officials may ask you these before applying for a business loan:
- Why are you applying for this loan?
- What other business debt do you have, and who are your creditors?
- How will the loan proceeds be used?
- What assets need to be purchased, and who are your suppliers?
- Personal Background of the applicant
- Who are the members of your management team?
- Make Accurate Financial Statements:
For the existence of any business it is crucial to have accurate financial reports and statements. Similarly, this information is required by banks to know the income and profit earning capacity of the business. Before applying for a business loan, ensure you have all financial documents such as balance sheet of the company, profit and loss statement, cash book details, purchase records, creditors and debtors’ details and so on. This is also essential for you to explain to the business officials what is the requirement for business loan and which part of businesses it will be used.
- State Other Means of Financing:
All banks will be keen to know what are the available sources of financing for each business are. If a business is solely depending on bank loan for all its requirements, either banks will hesitate to approve loan or will approve loan at high rate of interest. This is due to the high risk involved in business where the entire fund is pooled in just by bank loan. Basically banks do not want to take up the whole risk solely. If either the business owner or someone is ready to share the investment part, it means risk is diverted.
- Sign Collateral:
When you are looking for business loan you should be ready to sign collateral with banks. All financial institutions and banks are always worried about loss of money given to borrowers, thus the higher the amount is; more will be the need for collateral. The collateral will be released as soon as the loan is repaid and in case of any defaults banks will make use of this collateral to cover their loss incurred by sanctioning the business loan.
- Time of Loan Request:
When you request for a business loan is very crucial. At times of economy boom getting a loan approved is easier as compared to loan during recession. Big picture is always taken into consideration by smart lenders. Depending on the business you deal, banks will analyze the industry and will calculate the interest rate and other charges on the loan amount. If you are requesting a loan when the pharmaceutical industry is in a boom, the chances of getting loan at low interest rate are high. And also, by the time of loan application business needs to be atleast 3 years old with profit in past 2 years.
- Track Record of Stakeholders:
All the stakeholders of the company should be prepared to showcase their personal financial details to the bank officials in case of requirement. Banks have all right to check the financial stability of the business stakeholders before approving loan for any purpose.
Thus next time when you walk into the bank for a business loan checklist all the above points to get the loan approved in a hassle-free manner.