The growth of a business over the long term depends considerably on how smoothly it carries on its business operations and day to day transactions. The smooth functioning of an enterprise, in turn, depends on the availability of abundant liquid cash, be it in hand or bank. Having a substantial amount of liquid cash at the ready defines success in a small business. It is not always possible to have a substantial amount of cash handy, precisely why the business loan is such an important requirement in businesses. An entrepreneur does not necessarily need a very high credit score to be granted with a business loan. Given below are a few tips that can help increase your chances of securing a business loan.
1. Keep your current financial statements ready:
The first thing that even a SME loan will want to see is your current financial statement. A well-kept, accurately dated, and a detailed financial record is an important document that needs to be presented before the lender while applying for a business loan.
The lender will check the accuracy of the reports and judge the functioning and creditworthiness of your business from these statements before granting you the loan. Hence, it is extremely important that you prepare and present a financial statement of your business to the lender while applying for the loan.
2. Ensure enough cash flow:
Even a small business loan lender will require you to pay a minimum down payment of 20 to 25 percent. This implies that you must have the minimum cash in hand in order to be able to pay for the loan. The business loan interest rate will also be added to the principal amount to determine your total monthly expenditure on the loan. The lenders will want to check your cash flow statement to decide whether you will be able to cover the cost of taking a loan. It is imperative that you have enough cash flow and liquid money in hand to finally be able to secure a business loan.
3. Communicate personally with lenders:
It is extremely important for someone to realize that people make up the business. When you go ahead and communicate directly with the lender instead of sending an appointed official who only enquires about loan rates, you are more likely to end up securing a loan for your business. This is because personal communication helps create and improve bonds between people which work in their favour when it comes to business.
Communicate and build relationships with lenders outside the business. This will give you an added advantage when you will need a loan for your business in the future.
4. Be willing to risk personal assets:
It is a purely psychological reason why lenders feel more secure about sanctioning a loan to someone who pledges his personal asset than someone who pledges the assets of the business.
When a business goes bankrupt, there is practically no way that the loan can be recovered as the assets are most likely sold off to pay the clients back. However, if personal assets of the owner are pledged against the loan, lenders feel that these assets can be used to recover the money. They are also of the impression that if personal collaterals are pledged against a loan, business owners will be more careful about handling the money in the fear of losing their assets. Thus, if a personal asset is pledged against a loan, you are more likely to end up securing it.
5. Prepare your 5Cs:
Although different lenders have different criteria on which they approve a online business loan, most of them judge your business loan eligibility by the condition of your 5Cs. These 5Cs are your capacity of loan repayment, the additional capacity requirement, the current condition of the business you own, the collateral security that you pledge to secure the business loan, and your character as the owner of the business. Before applying for a business loan, make sure you are well prepared with these, so you have a better shot at securing the loan.
6. Check the current economic conditions:
The current economic scenario is a very important consideration when it comes to applying for a business loan.
It is advisable to apply for a loan when the economy is going through its boom period. This is the time when lenders have a lot of liquid cash in hand and will be less strict in handing out loans as compared to the period of economic recession when money is relatively lesser in hand.