Have you ever felt frustrated because a bank would not approve your business loan?
Are you still smarting after being rejected by your very own bank that you have dealt with for years?
Well I have good news for you dear reader, I will give you some of the most important ways to increase the chances of getting a business loan.
Start Early on Business Loan Application
The sooner you get started on the business loan application process the better. Typically, it takes about 60 to 90 days to process a loan application.
During this time, all the paperwork is being filed and reviewed.
Don’t wait until that money is critical to the running of the business. Sometimes business loan applications get rejected.
The best time to apply for a loan is when business is doing good. Applying when you really need it comes across as desperate by the lender.
A Well Researched Business Plan
A good business plan tells a good story of why the applicant wants the money.
Not just any story, but a story backed with accurate facts and figures that can be readily verified.
Check Your Credit Score
Check your credit score at a credit reporting agency like Equifax and Transuinion. If there is anything in the report that is affecting your score, get it resolved today.
The faster that the problem can be corrected, the better the chances of getting approved.
That may mean establishing a pattern of paying bills several days ahead of the due date. Suppliers will look at you more favourably especially when times get tough.
Separate business and personal expenses into different bank accounts.
Strong Cashflow Increases Chances of Getting Business Loan
It’s a good idea to spruce up the cashflow report before asking for money.
This would include calling up delinquent account holders and make a deal on all outstanding receivables.
Consider the parable of the dishonest manager. The master had a manager who was accused of wasting his assets.
The master demanded an accounting of all that was owed to him as the dishonest manager was about to be fired.
Fearing for his reputation, the dishonest manager called each of the master’s debtors to settle accounts.
For some debtors the dishonest manager told them to slash the invoice in half and pay it.
For other debtors the dishonest manager told them to slash 20% off the invoice and pay it right away.
The master praised the dishonest manager for being so clever.
You can be this clever too by cleaning up your receivables or outsourcing it to a factoring company that may buy those invoices.
You will not get 100% of the invoice however; it is cash that the business would never have realized.
No, I don’t mean a tax audit, I’m talking about getting your profit and loss and balance sheet audited by a 3rd party audit firm.
The financials that you present to the lender will look more credible when they have the word “audited” on them.
That means the financials of the business will look more credible because the numbers are verified.
This is much better than getting a notice to reader, which is a fancy way of saying “I have looked at these figures and they appear to be in line with what the business owner is saying, however we have not verified the figures”
Calculate Exactly How Much Money the Business Needs
I see many small business owners ask their banks “how much will you lend me?” A better plan is to calculate exactly how much money is needed.
If you ask for too little money, then you will run short and fail. If you ask too much, then you will pay more interest on money you don’t need.
Begin by adding up all the operating, overhead, loan costs and living expenses that will likely be incurred.
Then estimate how much the sales will be during that time frame. The difference between the two amounts is how much money you will need.
How Much of Your Own Money Is in Business?
This is a critical point as it lets the lender know that the owner has their own money invested as well.
Lenders tend to look favourably on applications where business owners have some of their own money invested.
It lends credibility to the application and shows that you really believe in the business.
Create an Emergency Fund
Creating an emergency fund will help ensure that you don’t get behind in repaying the loan.
An emergency fund is used when unexpected expenses like a repair come up unexpectedly.
Lenders like seeing that you have cash on hand and are prepared for the future loan repayments.
Network with Lenders
People do business with people they know like and trust. Networking is one of those ways to establish that.
By building the know like and trust factor, approval of your loan gets much better because you are now known and liked.
Increasing Chances of Getting a Business Loan
As a small business owner, it is already tough getting a loan. However, by using the advice above, you will increase the chances of getting approved.
If one bank turns you down, there is always another one. Just keep trying and tweaking the application until you get the business loan.
Check out What to do before you sell your business
If you need help getting your finances together for a business loan, contact Mathew today