A new startup, a new supermarket or an established restaurant that wants to expand further – they are all small businesses. Such companies often need capital for their new or growing business and have specific loan requirements. A physical company may need money to expand into e-commerce, an established store may want to open two more stores in a new environment, or a vegetarian restaurant may want to expand to the paleo diet and need money for more retail space. (For more information, see Starting a Small Business: Introduction.)
Due to the wide variety of small businesses and their specific needs, applications for small loans are carefully examined on a case-by-case basis by potential lenders. We look at a few key points that can help improve the chances of securing a loan for small businesses.
What are lenders looking for?
Simply put, the lender seeks assurance that the borrower will repay his loan for small businesses in the allocated timeframe. This security can be indicated by potential business profitability, liquidity of business capital, minimum debt Glass familyast, healthy stock turnover and a healthy customer base. Everything that the lender assures of the above will improve the approval of the loan. Everything that raises questions about these factors can lead to rejection.
Improve your chances
- Understand the Small Business Loan Process : Every country / region has its own set of established financial rules that apply to financial markets, lenders and the associated lending processes. If you are aware of the details, you can present your loan application and supporting documents in a better and more favorable way. Familiarity with the loan approval process, key issues and key documents (and required details) will give you a clear head start.
- Prepare, prepare and prepare : from placing the loan application documents to talk with the lending officer in a self-assured tone while explaining the business potential of your company, everything related to the process is important. Of course, the bank will conduct its background investigation by verifying the company’s accounts and the borrower’s creditworthiness. But the better and better presented information is with the loan application, the smoother the application process will be.
- Future perspective : you may have a great innovative idea for your new company or you have great profit figures from your previous company. But the lender looks beyond these past and present details toward future profitability, which can assure him of your ability to repay the loan. The better these details are explained with the loan application, the easier it will be. Successful loan seekers even present a year-on-year projection of realistic numbers for revenue and profit, which helps the lender to assess and approve the loan application.
- Backup Planning : it helps to have at least two repayment plans ready. The loan officer can often find some points to dispute in the original business plan. This can lead to questions about the viability of your company and your options for repaying loans. With a second business plan at hand, not only can the loan application go more smoothly, but the lender is also assured of the wit and expertise of your company. The secondary plan may include a different loan repayment schedule or may offer partial / improved collateral, which may not have been the part of the original application.
- Hunt for specialized lenders : several lenders exist for different industry sectors. In an attempt to promote agro-business, the government can, for example, sponsor a lender who offers cheaper loans to small-scale farms. Similarly, small businesses in a particular industry sector may be eligible for fast loans. In addition, your training qualifications and work experience can qualify you for discount rates and timely approval. A borrower must explore all possible options to not only monetarily benefit from lower interest rates, but also to increase your chances of approving loans.
- Approaching and negotiating with multiple suppliers : lenders earn money by borrowing money. Just like borrowers looking for easy loans, lenders also look for good and worthy borrowers. One should investigate different loan options with multiple lenders and select the best deal at the lowest cost. Lending is a competitive company. If you are certain of your creditworthiness and repayment, it is even worth negotiating for a lower interest rate.
The bottom line
Regardless of size, a company may have capital requirements during different business phases (start-up, growth or decrease). Small business owners often struggle with loan applications because of their limited knowledge of processes and details. If you keep the above guidelines in mind and spend sufficient time and attention on a credit application, you can not only speed up your capital availability, but you will also receive a cheaper loan. (For more information, see: Start your own small business.)