Last Updated on Aug 18, 2022 by James W
A loan is a common source of funding for a company’s progress or even getting it off the ground in the first place. However, securing a business loan is easier said than done. Lenders are cautious when it comes to approving financial takeouts. They do not only oblige you to undertake a paper-intensive process but also thoroughly scrutinize applicants.
But that doesn’t imply you should lose heart. With proper planning, business owners can convince lenders to sanction the desired amount on a low-interest rate. To give you a better idea, we have put together tried-and-true tips that will help you secure a loan in a breeze.
1. Learn about different loan options
The lending industry offers several commercial lending options, and some will be more beneficial to your company than others. The alternatives vary based on your company’s demands, duration, and conditions of the loan. Accounts receivable financing, small business line of credit, business cash flow loans, equipment loans, working capital loans, microloans, invoice factoring, equipment loans, and SBA small business loans are just a few of the most popular options. Conduct research and cherry-pick the loan that aligns best with your financial needs. If you are not sure where to start, you can visit FinImpact and search up online lenders such as Fundbox or any others to get a better idea of what they all offer.
2. Update your company’s online presence
A fair proportion of lenders will not take your word for it when you spell out company details. Instead, they will investigate on their own in addition to what you tell them about your firm. Expect a thorough drill-down of your online presence, especially if you approach an online money loan provider for better convenience. This would most certainly entail looking into any internet information about your company. Therefore, to be on the safe side, you should make any required modifications or deletions beforehand.
Ensure your business’s website is professional, up-to-date, and has a decent presence on Twitter, Facebook, LinkedIn, and other notable social media platforms. Better still if you manage to pull off a bunch of Yelp reviews for your company in the meantime.
3. Improve your credit score
Along with your company credit profile, lenders will often use your credit score to assess your creditworthiness. It stands particularly true for small business owners. Diving into credit score helps lenders establish if you are likely to make timely repayments based on your previous behavior. The stronger your credit, the more business financing alternatives you may have.
4. Lay down an optimal business plan
Every lender wants to learn what you plan to do with their money and whether or not you can repay the amount on time. The most reliable tool for lenders to receive this information is via a business plan. Therefore, creating a comprehensive business plan is necessary before exploring lending options. Do not assume writing a persuasive business plan is a complicated task. Just sticking to the following basics will get the job done:
- Write a compelling executive summary: The executive summary describes your company objectives and the tactics you plan to use to accomplish them. It should be engaging enough to entice the creditor to read the entire business plan and consider lending you money.
- Industry knowledge holds the key: To begin with, convince the potential lender that you are an expert in your niche. You will need to establish there is a reasonable market for your specific service or product. So stay on top of homework and know what is going on in your business.
- Talk about marketing techniques: Include both online and offline marketing initiatives, such as a public relations campaign for your monthly business events, or banner placement on the websites that target your customer base.
- Focus on financial analysis: As a rule of thumb, financial estimates for at least the next three years must be included in this portion. Bear in mind; the farther your projections go, the more difficult it becomes to anticipate accuracy. We recommend you prepare a business strategy with three-year predictions but have a five-year forecast available to be on the safe side
5. Come up with a collateral
Though unsecured loans are highly desirable among aspiring entrepreneurs, they are restricted to smaller loan amounts. In other words, they are ideal for new firms starting out or in their early stages of operation.
But if you are running a large corporation, you will probably require a hefty amount to start a new project or bring things back on track. In that case, an unsecured loan might not be the best bet for you. That is where secured loans come into play. Contrary to an unsecured loan, getting an unsecured loan will entitle the borrower to offer some security to the lender. Here are a few types of assets you can keep as collateral:
- Property: This is arguably the most frequent kind of collateral employed. The lender may be able to resell the property for a greater price than when the deal was first signed, allowing them to recoup their expenditures. Mostly, business owners use their homes as collateral to receive a loan for their company. However, this is a high-risk strategy since you risk losing your house if you do not repay on time.
- Equipment: Equipment could be used as collateral for the loan. That said, there are a few essential considerations. First and foremost, you must examine the equipment’s worth, not simply its price. Heavy equipment, for example, may be technically useful. Still, if finding a buyer is difficult, the lender might not consider it valuable. Computers and other gear, on the other hand, become outdated rapidly. As a result, their value depreciates with time.
- Inventory: Inventory is one of the most prevalent types of collateral accepted by business lenders. Companies that need to pay their suppliers for merchandise are better off opting for inventory finance. It may assist a firm reach bigger sales volumes by buying more inventory on demand.
6. Minimize debt-to-income ratio
The debt-to-income ratio (DTI) is a core finance metric that compares your total debt to your total income. Lenders use it to gauge a company’s capacity to manage monthly repayments. Lenders see a high DTI ratio as an indication that you may end up defaulting on the loan.
Thousands of loan applications are rejected by lenders, citing various reasons every year. It happens because loan applicants do not think through the process and indulge in silly mistakes along the way. However, we assure you will not face any difficulty acquiring the desired financing by walking the tight line of the guidelines listed above.