Every business requires funds to operate smoothly. A shortage of capital can pose obstacles and hinder day-to-day activities. This is where obtaining a Business Loan becomes essential. It not only offers support for running the business but also aids in maintaining a steady cash flow.
Having a thought-out business plan is crucial to apply for a Business Loan. Additionally, it is important to have a credit history to present to the lender. Below are some strategies to strengthen your business loan application and increase your likelihood of approval.
1. Have a Solid Business Plan
Many lenders require applicants to submit their business plans. Even if your lender doesn’t specifically ask for one. Having a plan with a summary can expedite the loan application process and aid in evaluation. Besides showcasing your commitment to responsibility, preparedness and organisation, presenting a plan allows the lender to understand the purpose of borrowing and how it can benefit your business.
When crafting your business plan outline details about your business nature, operations, revenue streams and unique selling propositions. Additionally include information about competitors, market opportunities and competitive advantages, within the plan.
Don’t forget to consider your business model, team members and expenses such as equipment, rent and salaries. A crafted business plan serves as a tool to persuade lenders about your business concept and execution strategy. This helps them assess your eligibility for a business loan and gives them confidence in approving your loan application.
2. Check Your Credit History
The credit score is an important parameter in the financial industry. Lending institutions check your credit rating to determine your Business Loan eligibility and decide upon your loan amount, interest rate, and other terms and conditions.
Essentially, by checking your credit score, the lender wants to ensure you are creditworthy and have the capacity to repay the loan. While evaluating a Business Loan application, lenders analyse your personal and business credit scores. Therefore, before applying for a Business Loan, check your credit report and ensure it is in perfect condition and without any errors or discrepancies. If you spot any errors in the report, dispute them and get them corrected before applying.
Evaluate your credit history and identify any negative activities that you can repair. Some tips to improve the credit score include making timely payments on all credit accounts, keeping the DTI low, increasing the credit limits, diversifying the credit portfolio, etc. If your personal or business credit score is low, build it up before applying.
3. Clean Up Your Records
When you’re looking to secure a business loan the lender will carefully review your company’s statements and accounting records. It’s important to have detailed cash flow statements, balance sheets and income statements. To ensure everything is in order, consider reaching out to a certified accountant for guidance. While not mandatory most lending institutions prefer records that have been audited or reviewed.
4. Decide Upon an Appropriate Loan Amount
Before you apply for business loan, it’s essential to assess your funding requirements and decide on a loan amount. Having a plan in mind when choosing the loan amount can help avoid shortages or surplus funds down the line. Asking for more than you need could lead to working capital shortages while requesting less than necessary might result in debt and financial inefficiencies.
Creating a structured company budget can help prevent difficult situations and address the lenders concerns regarding how the loan funds will be utilised based on cash flow considerations. Thoughtfully determining the loan amount could enhance your chances of getting approval for the loan.
5. Minimise Your Debt-to-Income Ratio
Your debt to income (DTI) ratio is a measure that compares your debt obligations to your income level.
Having a balanced debt to income (DTI) ratio is generally seen as favourable. This ratio indicates your ability to handle loan payments without putting strain on your finances.
6. Choose the Right Loan Plan and Lending Institution
Depending on your Business Loan eligibility and other conditions, different lending companies offer unique loan plans. Not all loan plans are equal in loan amounts, interest rates, repayment terms, etc. You must compare the available loan offers and find the best fit for your needs. Different lending institutions also have varying eligibility criteria, documentation requirements, fees and charges, and other terms and conditions you must fulfil. Research and compare the options to find the one that best suits your eligibility and requirements.
7. Ensure Efficient Cash Flow Management
Every lending company offering Business Loans analyses the applicant’s repayment capacity before approving the loan application. Your business’s liquidity position should be stable, as it is a key factor lenders consider when evaluating your Business Loan eligibility. Therefore, before applying for a loan, understand your cash ratio and liquidity available for loan repayment. Eliminate unnecessary expenses and manage cash with better discipline to improve your liquidity.
8. Have Well-Sorted Documents
When you apply for a Business Loan it’s vital to submit all tax paperwork for your business. If your documents are not well organised you run the risk of forgetting to include some of them in your loan application. Inadequate or incorrect documentation could result in loan denial or approval delays. Therefore ensure that your income tax returns, credit reports, registrations and GST related documents are properly sorted before applying for a loan. Address any issues in the paperwork to expedite loan approval.
9. Have a Specific Purpose for Loan Use
While SME loans often offer flexibility in usage, lenders prefer knowing how you intend to use the borrowed funds. Hence specifying these details upfront can lead to approval.
If you’re considering applying for a Business Loan pay attention to these guidelines when preparing your application. Showcase your business acumen. Provide information about your financial situation to increase approval odds. Developing a business plan, maintaining a credit score and reducing the Debt to Income ratio can facilitate obtaining a Business Loan swiftly and with minimal complications.
Determining the loan amount could enhance your chances of getting approval for the loan.
Selecting the loan plan and lender is crucial based on your eligibility and specific circumstances. Different lending institutions offer loan plans that differ in loan amounts, interest rates, repayment terms and more. It’s important to compare the offers to find the suitable option for your needs. Keep in mind that different lenders also have varying eligibility criteria, documentation requirements, fees, charges and terms that need to be met. Research thoroughly. Compare the options to identify the fit for your eligibility and requirements.
Efficient cash flow management is essential when applying for business loans from lending companies. These companies assess an applicant’s repayment capacity before approving a loan application. Ensuring that your business has stable liquidity is crucial because lenders consider this aspect when evaluating your eligibility, for a business loan. Before seeking a loan assess your cash ratio and available liquidity for repayment purposes.
Cut down on expenses. Handle your cash more responsibly to enhance your financial flexibility.
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