Most small and medium businesses require capital support for sustenance and existence in the market. Lack of funds is the main reason behind the failure of such startups. Extra funds can be raised by seeking monetary support from lenders. Lenders look at many things before deciding the amount to be lent to the borrower to assess whether the borrower can even repay the amount.

Build A Relationship With Your Bank

Get to know your bank facilities, and you are far more likely to get a business loan when you need it. Some of the questions that can be asked from the bank are as follows:

  1. Does your desired business loan amount fit within the bank’s lending limits?
  2. Does the bank offer an array of products and services that you want?
  3. Is the decision-maker someone you can meet with?
  4. Is the bank willing to meet you at your company?
  5. Are loan decisions made locally?
  6. Is the bank familiar with your industry?

Having a good relationship with the lender has multiple benefits as there are challenges getting credit from the lender. It helps lenders in the following ways:

  • Lenders tend to avoid risks
  • Lenders require multiple repayment sources
  • Lenders have documentation responsibilities
  • Lenders must deal with the burden of regulatory oversight

Be Ready with Proper Documentation

If it is difficult to reach you to respond to requests for documentation and information before the loan is approved and closed, the lender will assume that it will be even more difficult to get such information after the loan is funded. When initiating the application process for a business loan, it is essential for you to have a detailed command of all of the requested documentation so as to be ready to respond to lenders questions and conclusions.

Questions related to business tax returns and debt to equity ratio are the most common ones that lenders inquire about. Other than that, it is a good idea to keep a business license and bank account statement handy with you. These help in getting the loans approved faster and contribute towards relationship building with the lender.

Have A Business Plan

Business owners put a business plan together to seek external financing from lenders or investors. Business plans must provide information and short-term/intermediate goals of the companies.  These act as tools to assist business owners and managers in planning and targeting results in a better way. Knowing how lenders perceive and evaluate the borrower’s industry, and business can assist in planning the approach necessary to obtain a business loan.  

Other aspects that must be a part of the business plan are the following:

  • Future Plans
  • Profit
  • Inventory Purchase
  • Salary to Staff
  • Other Expenditures
  • Funds
  • Clients Payments

Refer A Group Of Professionals/Advisors

It is a good idea to have advisors review a loan application for a second opinion to ensure accuracy, completeness and focus before submitting it to the lender. Test the loan application of your closest advisors before submitting it to the lender for review. Sometimes in a hurry to complete the voluminous set of documents can lead to errors. Consulting with an experienced advisor in this field is a good idea if you can afford it. If you own a franchised company, most of the information will be provided as a part of the franchise package.

Limit your Negative Balance

A consistent cash flow is directly proportional to a loan acceptance. Bankers check the balance sheets of the companies and could reject loans if cash flow is found inconsistent. For an investor, cash flow displays a picture of the businesses’ monetary ability to pay off a business loan. If you've got a few unfavourable balance days in the course of the length when a conventional financial institution treats your business account, you will most likely be rejected for a loan.

Adequate Research

Conduct research on the available lenders in the market. It is not mandatory to borrow money from a bank or a big organisation. Many small businesses have successfully been lending money to startups with a lower interest rate. It is important to compare interest rate processing fees and other additional charges. Moreover, find out about the tenure period and accordingly select the lender.

Check Your Credit Worthiness

Banks and other lending organisations have their own ways of evaluating the credit scores of borrowers. The lender has a responsibility to provide a financial return for its shareholders by obtaining funds from depositors as well as investors and then prudently lending these funds to responsible borrowers. Typically, both personal and business credit records are evaluated by the lenders. A low credit history would indicate a history of bad record of loan repayment. In such a case, the risk factor would increase, and no lender will be willing to lend money easily.

The loan may include lending fees in addition to the interest, which may be substantial. The easiest way to avoid this is to repay your business loan on schedule and in full. This practice will not only save money but will contribute to increasing your company's credit score. It is critical to pay off your loan obligations and other debts to have an excellent credit score.

Avoid Seeking Several Quotations From Lenders

Having numerous quotations from numerous creditors appears like a reasonable scheme. But in case you don’t have a perfect credit score, your credit score rating may be more negative than it’s worth. The motive behind it is that a few creditors will perform tough research on your credit score. A review of the credit score would mean that your ranking will be impacted. For every investigation conducted, the ranking points get affected by 5 points, be it positive or negative.

There is no problem in undergoing elaborate investigations of your credit score, as that would anyway happen during the process. However, seeking numerous inquiries about your credit score is not required. Hence, be very sure of the lender and don’t make the selection process lightly.