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Tips On How To Secure A Business Loan

Securing a business loan is a major challenge facing small businesses, this is mainly due to the tight lending standards set by financial institutions (banks). Most of the time, new entrepreneurs gets denied when applying for a loan. While others may be successful with their loan applications, they may find themselves dealing with terms and conditions attached to the deal.

Obtaining external financing is often necessary to start or grow a business or take care of day-to-day expenses such as inventory and payroll. In securing an application, entrepreneurs or business owners must realise that both banks and investors operate under standard principles when lending money to businesses. Well, it’s pretty evident that finding, applying and approving loans for small businesses can be difficult, but the chances of being successful with your loan application depend on how prepared you are.

So, before heading out to approach lenders, be sure to ask yourself “how can I increase my chances of getting credit approval?” and you’ll be well on your way to securing the finances you need for your business.

Tips On How To Secure A Business Loan

To help you out, here are some few tips that are sure to up the odds of getting your business loan application approved.

Present A Solid Business Plan

This is more applicable to new business owners. A good business plan is one of the strongest weapons against loan application denial. It’s a no-brainer to know that financial institutions will require a business plan along with the loan application. The business plan should be broad and also include relevant information on both past and present financial statements. It should also include a detailed market analysis for the business as well as your overall experience that particular industry. Also, the value of assets to be used as collateral should be clearly stated.

Prove The Earning Capabilities Of Your Business

When it comes to securing funds for your business, cash is still the key deciding factor. Cash is the primary predictor of a business’s health as well as the prospects for the future. If you can successfully demonstrate that your business has steady cash flow, you are assuring potential lenders that you have enough money to pay employees, creditors and others without delay. You can show this by being able to provide relevant documents such as bank statements, financial statements and tax returns. These reports supply the lender with a historical performance of the liquidity as we as the performance of the business. You should also expect questions about fluctuations in cash flow such as if the flow reduced due to loss of a customer or recession. Be sure to provide an explanation in advance.

Be Sure To Have a Positive Payment History

One of the most crucial factors any financial institution is sure to consider is a business’s payment history. Lenders need to see and confirm that a business has a clear record of paying down debt and not just paying but paying on time. Also, there’s a high chance that the financer may have collected a third party credit report on your business. Be sure to ask to see and verify the accuracy of the report. There is a possibility that the report may exclude or fail to mention your significant trade partners and other lenders who would provide a positive reference and attest to your good payment history. You can prove this by supplying these references and remember to include the contact information for the individual you deal with at your trade supplier, bank, etc.

Maintain a Reasonable Debt Load

It’s imperative that you demonstrate your ability to handle both your current debt load as well as the additional debt repayment your proposed financing will bring. To give you a better understanding, the debt load is the amount of debt that is provided on your balance sheet. So, if you plan to incur the debt for developing or expanding your business, be sure to demonstrate why or how this additional debt will benefit the business. For instance, show how the added funds will be used, and foretell the additional revenue that will be generated as a result of the supply of cash. The use of gain or income from the loan is a paramount point of information to the lender.

Confirm The Economic Conditions

One of the conditions that may likely affect an investor’s decision to approve your application is the overall economic climate during the period of application. It’s pretty obvious that banks will view tight economic conditions as a challenge for any entrepreneur to pay back the investment. Moreover, periods of economic recession also implies that banks will have a harder time approving every loan application they come across. So be sure to know the economic conditions before applying for a loan. This is crucial!

Demonstrate Business Judgement

Potential lenders will also like to be assured that you expect potential challenges and have a plan in place to address the problems. Moreover, lenders or investors are also interested to see that you have management in place that’s good enough to overcome any situation that might come your way.

Review Borrowing Options

It’s in your best interest to consider all the commercial banks at your disposal. While most people tend to be attracted to large national banks, regional institutions should guarantee a priority spot in your prospective list. It’s also noteworthy to mention that your chances of getting a loan are much higher when you approach small commercial banks.

Well, there you have it. These are a few tips that can increase your chances of securing necessary funding for your business. All in all, being successful in your loan application demands transparency with all your relevant financial data. Overall, you should be a confident entrepreneur who has strategically planned out the business in all its fundamental aspects.

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With over seven years’ experience in the heart of the investment industry, Daffa Zaky has become a respected commentator in the financial world. Daffa remains a keen forex and binary options trader. He is a regular featured analyst for a number of online news portals and was responsible for

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  • Hi Paula, From the consumer’s point of view, I can see how own brand is attarctive right now but I think you raise some powerful points against. The reaiity of course is that own brand will push smaller providers out of the marketplace unless they can come up with innovative ways to compete. From an Irish perspective, we’d seen the rise of an artizan food industry which continues to provide us with a bright light. I invited Margaret from @oldefarm to speak with me at a conference last week, and their’s is a wonderful and inspiring story.

  • Daniel

    Hi Paula, some interesting comments and I suppose as in most things in life it cannot be seen as black or white. A smaller manufacturer that doesnt have a huge budget to build a brand finds it extremely challenging to break into a market. By producing own brand products it allows them to build a market and build volume on the back of the large retailers brand. Yes the retailer can find another supplier but then the supplier is also free to find an alternate retailer. The major retailers such as Tesco and Walmart are hesitant to stock the same smaller brands as each other but again while producing own brands you could supply to four or five major retailers and the perception is that they product is comming from different suppliers. I think the biggest danger is if own brand manufacture becomes too higher portion of your total turnover. Certian retailers have rules that will not allow you to supply them if the loss of their business will have a massive effect on your business. A view from the other side!!!

  • Thanks for your comment Niall. This year’s Edelman Trust Barometer research report indicated that consumers now need businesses to be there for more than just making a profit, they need to have a purpose too. Lots of big retailers are paying lip service to this but making it very difficult for small local producers to grow or just even to keep going. We know that all businesses need to turn a profit, but it’s got to be done in a way that will nurture a healthy local economy for the long term.

  • Thanks for your response Daniel. Yes, you’re right, there is an opportunity there for producers to build volume sales, there is just less security for them as there is no apparent consumer demand for their brand. It’s good to hear that there are some retailers who have a responsible attitude to their suppliers:) Very interesting points, thanks!

  • That would have got my dander up too.  I have a huge problem with the supermarkets sourcing foodstuffs and selling them under own label, fair enough if the producer gets the same price for it but do they? With supermarkets like Tesco’s and Dunnes the answer is probably going to be no. With Aldi, apparently they take a much lower margin on items such as vegetables and pay their suppliers a fair price and pay what they said they would but I don’t know if that works the same for their flour and bread etc.
    I have a huge problem with people buying Tesco milk for example, much is sourced from Northern Ireland where they pay a lower price for it.  If we all spend an extra €4 a week on guaranteed Irish products, we will create an extra 6000 jobs. As consumers, we have the power to turn this country around, we just have to think about how we spend those few euro each week.

  • Paula

    You’re dead right, Lorna! We all have a responsibility to think long term and think about what’s best for our local economy. 

  • Buying locally made products always makes sense. Not only will you be supporting your community, you will also be helping the growth of the local economy.

  • Thanks for putting this together Niall and delighted to be included too

  • Jenny Brennan

    Thanks for including me Niall 🙂

  • You’re welcome Jenny!

  • No problem Sian and well done.

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