Getting A Business Loan Doesn’t Have To Be Hard. Read These 4 Tips.
Your business needs that extra funding to allow it to move forward. If you are unsure of which lenders to go to or how to approach them, the process of getting a business loan can be daunting.
Borrowers often make the mistake of not doing thorough research on which lenders to approach or the types of loans available to suit their business needs. Not preparing yourself well on the kind of information that lenders look for in your business can act against your request for a business loan.
To help ease your way through a loan application process, we have gathered here 4 tips that could get you that extra capital to help scale up your business:
1. Find The Right Lender For Your Business Loan
The importance of finding the right lender is often under-rated. In fact, this should be the crux of your loan process even before you start applying for one.
Small-medium enterprises (SMEs) make up more than 90% of all Singapore’s enterprises and are the main drivers of our economy. It is not surprising to find a multitude of banks and financial institutions that would provide SMEs with working capital loans to facilitate their business enhancement or expansion.
While having different options would swing the door wide open for the chance to secure a loan, having too many choices might stop you dead in your tracks as to which would be the best fit for your business.
How To Identify A Lender For Your Business Loan Needs?
One of the first things you must do even before thinking about approaching a lender is to be very clear on the objective of your business loan.
Being specific about what the extra capital would be used for in your business would help you identify the type of loan that suits your needs. It helps in narrowing down the list of possible lenders that could provide you with the extra funding that you need. Here’s a set of questions you might want to ask before setting your eyes on one.
Different types of business loans are put in place by lenders to cater to the varying needs of business owners.
For example, equipment loans, working capital loans, and microloans all come with varying interest rates and requirements to qualify. Understanding the requirements for the type of loan you are looking for can help identify the potential lender that can meet your needs, increasing the chance of you securing the loan.
It’s good to do some groundwork on the minimum requirements for the different types of business loans set by financial institutions. Taking the right loan plays a vital role in the growth of your company. Private financial institutions such as Capitall provide a wide range of holistic financial services tailored for varying business needs.
2. Build A Relationship With Your Lender
Communication with your lender doesn’t start with the onset of a loan request and stop as soon as you secure one.
Loan specialists suggest that you build a good relationship with your lender even way before you need that extra capital for your business. Approaching lenders before the need for loans arises allows the lender an opportunity to better understand your business, its goals, focus, potential, and expansion plans.
With a clear understanding of your business, lenders would be more assured in providing you with the needed funds.
Continue The Relationship Even After Getting Your Business Loan
Getting your business loan approved is good news. However, you should not let this become a reason to be complacent or stop you from maintaining a good relationship with your lender.
Lenders generally want to have the confidence that they are providing money to businesses with sound operational practices that are geared towards growth. So, it is a good practice to provide transparency to your lenders on how your company is performing from time to time. Be forthcoming when providing information such as the state of your industry, customers, vendors, or how your business is performing.
The point is to take an active approach to build a great relationship with the lender. It is about building trust with the lender in the long run.
Be Proactive In Maintaining A Good Relationship With Your Lender
Being proactive will work in your favour for future loan requests. It could see you getting approved for loans at a lower rate or even offered a better product that suits your business in the future.
Your needs will change as the business grows, and a lender who has a solid understanding and confidence in your business would be more than willing to provide different services relevant to different stages of your business.
3. Determine A Realistic Loan Amount That Your Business Needs
Identifying what and how the extra credit would be used for in your business would give you an estimate of the loan amount you need.
Asking for an amount below what you need may result in your business facing cash flow issues. On the other end of the spectrum, asking for higher than what you require might lead to a case of “a little too much”, as you face a bigger loan amount that must be settled regardless of your business’ performance. Thus, knowing the rough loan amount your business needs is vital.
Lenders don’t only look for a comprehensive background of your business and the purpose of the loan request. They would also appreciate a close estimate of the amount you need for your business plan.
So, providing lenders with a realistic estimate of the needed amount will assure them that they are dealing with a responsible borrower who is capable of fulfilling the repayment terms.
4. Understand The Monthly Financial Commitments Of Your Business
While being realistic about the amount you need is crucial in applying for business loans, having a good grasp of your business and monthly financial commitments would determine if you can afford the repayment.
You must do a thorough calculation of your monthly business operational costs and factor in expenses such as:
- Business location rental
- Office equipment and supplies
- Manpower and salaries
- Equipment or machinery and their maintenance
- Vehicles and driving expenses
Getting a loan means entering into a tenure agreement and committing to a regular repayment of the loan. Doing a detailed calculation of your monthly business expenses provides a clear and realistic indication on whether you can afford the loan in the first place.
Before we conclude the article, here’s a quick recap on the tips and what you should do.
|Tips||What to do|
|Find the right lender||Specify the objective of your loanIdentify types of loan that lenders offerKnow the minimum requirements set by these lenders|
|Build a strong relationship with the lender||Be proactive Get to know lender even before you need a loanOffer regular updates of your business performance after securing a loan|
|Set realistic loan amount||Determine a close estimate of the amount needed for your business purposeDo not underestimate or overestimate this amount as this reflects an inept knowledge of your business|
|Fully understand your monthly business financial commitments||Thoroughly calculate all your monthly business expensesDetermine if you can afford the loan after accounting for all these expenses|