Business Loan Application Tips for SMEs
If you find that it is time for starting your own business, expanding a current business, increasing your working capital, purchasing equipment or buying some business properties, you may find it necessary to get a business loan. You’ll need to be prepared, so here are a few tips for any SME owner about to meet with their bank and apply for a loan.
Contact Your Accountant
Consulting with your CPA can help you with knowing how much you should apply for and if it is actually a realistic amount. Since every business is different, you’ll need financial projections from him or her, including statements of cash flow, balance sheets and income statements. Working with an accountant can help you to more accurately predict some of the scenarios that could occur, like what to do if getting the business up-to-speed takes longer than expected.
Beef Up Your Credit and Your Credibility
Securing a business loan that carries a favorable interest rate requires good credit. If you check yours and it’s not quite up to the task, then work on repairing it before applying for the loan. You’ll also want to appear credible to your banker by explaining why you need the loan and how you plan to repay it. Be sure that you have some equity, like 30% of the total project cost (it varies per bank) and think about possible collateral you can offer to show that you have some skin in the game. But make sure you're aware of your business credit rating before you fill out any loan application.
Banks May Be More Cautious Lately
The fact of the matter is that banks do want to make loans, but you might need more collateral to secure your loan, like personal property or real property to satisfy lenders that they're making a safe bet. They have become more cautious of late, so you may either need plenty of collateral, excellent credit or both. Collateral strengthens your chances of getting the loan and the better your credit, the more comfortable your lender will be with making the loan.
Have a Business Plan
Keep in mind the fact that your banker will be concerned about your SME’s basic story and what kind of a business plan you have prepared. That business plan should tell him or her about your character, capacity for repayment, collateral to be used and requested credit conditions. Your business plan will help your banker with understanding something about your business, your customers, what the loan is for and more. When paired with your credit report, he or she will have a handle on whether making you a loan is a good risk. Make sure that it includes:
Analysis of the loan-purpose
Analysis of your repayment source(s)
Proposed loan structure
Loan management plan