Ravi Chandran
Enterprises cannot clinch business loans quickly unless they follow these 3 cardinal rules closely
Know three things to clinch business loan quickly – information, security and experience.
- Information
The more quality information the bank has about your business, your plans and your industry, the more likely you will be successful in your loan application. The objective of preparing a loan application is to show the bank that you run a viable business and therefore providing you with a business loan is a low risk proposition.
One of the most important aspects of your loan application is to demonstrate to the bank that you can organise your thoughts and ideas in writing and can support them with financial information. Make sure that you understand all the information that is being presented in the loan application. Respect the bank’s need to ask what appear to be personal questions. Remember, they are going to be your business partner!
2. Experience
Bankers will be very interested in how you run your business as a profit generating exercise and your plan to generate cash flow. Healthy cash flow is the very essence of a successful small business. After all if your cash flow is poor, your business will struggle to operate efficiently and repay any loan.
3. Security
Security is also crucial to the loan application. The more security you have, the better your chance of getting a loan. The security you offer will form the basis of the loan agreement. Preliminary discussions with banks will give you an idea of the kind of security they would be looking for, and the dollar value of such a security.
One best small business loan tips most people won’t give you is to not wait until you are desperate to ask for money. This is not a good foundation for a successful loan application. The bank wants to feel secure in its decision. It does not want to hear that your business needs the loan to survive; it wants to hear that your business needs the loan to grow.
If you clinch business loans quickly especially during tough economic times, the biggest advantage is that companies can use the additional capital it to increase their working outlay.
While companies that are looking to expand often already have enough money to become larger, taking out a loan allows them to maintain their operating cash flow, making it easier for them to cover any unexpected expenses. Thus, they are able to make payments on their loan by using the new income gained from expanding their business.
Another benefit of getting a business loan is that, if the loan is lent to a corporate entity, the loan will not usually have to be repaid by the business owner if the company fails. In the event of failure, the business is liquidated, which helps pay back part (sometimes all) of the funds borrowed. Many business owners keep this advantageous aspect in mind when borrowing money because it is only the corporation that will go bankrupt in the event of loan default, not the owner personally.
What is particularly advantageous about seeking a business loan in the current climate is that interest rates are unbelievably low right now. As the liquidity of banks increases in the wake of the recession’s brunt, banks are increasing the rate at which they lend and interest rates may soon rise to compensate. A large loan taken out now or in the near future will have much lower overhead than will one taken out in two year’s time, making this the opportune time to plan expansion.
Ultimately, all business owners should evaluate their wants and needs before contacting a lender for additional capital. This allows the business owner to see which type of lender is the best fit for their company. Similarly, it is crucial that business owners take the time to read the all of the terms and conditions accompanying any business loan they are considering. There are often early repayment penalties associated with a loan and it is important to obtain a business loan that does not incorporate these penalties, as prepaying a loan in full can save a business a large amount of money in interest.
There are a number of things to watch out for when you decide to take out a business loan for additional capital. When your liaison at the bank presents you with your options, make sure that you understand the terms. If you don’t, ask them to explain them again until you do understand.
Under no circumstances should you enter any agreement until you know it through-and-through: the frequency and flexibility of payment deadlines, how interest will be calculated (and how often), any penalties associated with missing a deadline, what kinds of customer service you can expect, and whether or not you can renegotiate the terms in the future are all key points to grasp.
To clinch business loans quickly, remember also that your current bank is not the only one willing to lend. Examine other lenders’ ability to offer you a loan to your specifications before making up your mind. With a little caution and patience, you can avoid most unforseen, negative consequences that might otherwise arise.
Despite the drawbacks, business owners should keep in mind the many advantages a loan can present, especially to access additional capital. Expanding a business in the current Coid-19 pandemic-induced economic climate could mean achieving far greater success once we bounce back from the recession, and the sudden, increased liquidity can help a business suffering under sudden expenses pull through until it can stand on its own feet again.
The main thing to remember when obtaining a business loan is to shop around for the best loan rates and always partnering with a lender who is trustworthy. If you can secure a reasonable interest rate, payments, and the ability to repay the full amount at once, getting a loan just might take your business to the next level.
Mr Paul Ho, chief mortgage officer at iCompareLoan, said: “Now pay be the best time to get more cash to to have additional capital. Business owners should talk to a trusted loan specialist to explore how they may qualify. If they own private residential property, they may also be able to get access to home equity loan. But the key is to act in a timely manner without delay as the financial scene here is rapidly changing.”
