Applying for a loan for your small business: 6 things you need to know
Sourcing for loans for a business is one of the most important concerns of every business owner. Finding ways to obtain financing might be difficult if you manage a small or medium-sized organization (SME or MSME) with little commercial assets or collateral.
Due to a lack of proper credit facilities for small company owners and entrepreneurs, obtaining a small business loan in Nigeria is a big difficulty for most small firms.
However, outsourced funds are sometimes needed to establish or develop a business and cover its day-to-day expenditures like payroll and inventories.
Here are some things you should know before asking for a business loan from a bank or a non-banking financial institution to boost your chances.
5 things you need to know before applying for a loan
The following are some general loan qualifying requirements to keep in mind to ensure a smooth process:
- When applying, the candidate must be 21 years old or older (this figure is generic and the minimum age differs from 18 to 25 depending on the norms followed by various organisations).
- The applicant should not be older than 65 years old when the loan matures.
- The applicant’s business should have been profitable for at least the last two years.
- The applicant’s company must have been in operation for at least two years, and the candidate must have at least five years of business management experience.
Determine the amount required
Before you apply for a business loan, utilize a loan calculator to determine how much financing your business requires. To answer this question, you must first determine why you require a business loan.
- The Federal Reserve Bank of New York discovered three main reasons why US firms take out loans:
Business growth (64%).
- Operating expenditures (45%)
- Loan refinancing (45%)
Knowing this will help you know how much your business requires to loan, and you can build your loan strategy around this.
Personal and business credit
This has an impact on financing alternatives. Many people believe that small company finance is difficult to qualify for in order to acquire the best interest rate and loan conditions from a traditional lender. This is especially true if you have a below-average personal credit score or no business credit history.
The good news is that there are alternatives to traditional finance for small company loans. You may now pick between platform lending, traditional bank loans, and a variety of financing choices accessible through local merchants or an online lender.
Business credit is essential not only for the now but also for the future. Any financing decision will be influenced by your FICO credit score. It is a good idea to try to resolve as many personal and company credit flaws as possible.
There are certain exceptions, but a business plan is required for the great majority of commercial loan applications. Although it might be brief—even a lean business plan—banks nevertheless want a typical description of the firm, product, market, team, and financials.
A compelling personal résumé:
An excellent resume can boost the likelihood of loan acceptance.
Traditional lenders want evidence that the personnel in charge of operating a firm are qualified to do so. Seeing the résumés for you and other principles such as owners and executive officers will be part of that proof. This résumé should be as strong, well-edited, and current as any you’ve ever sent out.
Platform lenders or banks will look at your company’s curriculum vitae in terms of performance data and social sharing rather than your standard résumé. Take the same care with those elements as you would with a standard résumé.
Prepare your paperwork for the loan application.
This is an essential procedure that should be prioritized. Gather all required papers to shorten the loan application process and make things easy for you and the lender.
Depending on the lender, you may be required to submit some of the following papers for verification:
- Identity verification
- PAN number
- Address verification
- Business evidence
- Bank statements for both businesses and individuals (last six months)
- Records of business and personal tax returns
- Financial statements for a company
- Commercial leases and franchise agreements are examples of legal instruments used by businesses.
Almost every lender will ask how long you’ve been in the company when you apply for a business loan. As time in business can be considered as a measure of your company’s success, the longer you have been in business, the greater your chances of securing a loan for your firm. Most lenders only lend to firms that have been in existence for at least two years, making it difficult for new enterprises to obtain finance. Online lenders may accept firms that have been in operation for at least a year, but banks and other major lenders will require at least two years before considering you for a loan.