The world of modern business has embraced small business loans. These loans for small business fulfill the short term and long-term requirements of small and medium-sized enterprises (SMEs). With the rise in the number SMEs globally there is a limitation in the financial resources that are available to fund everyone’s dreams and visions. Due to this reason, availing a SME Loan can present many hurdles and challenges and can be a difficult task in itself. However, not all is lost. Some sure shot methods can be used to improve your eligibility for a SME Loan and improve your chances of procuring one.
These are some important factors you must keep in mind when you approach potential lenders or creditors for your business loan:
- Know your business
Having a well-structured, systematic business plan in mind is half the battle one. It is crucial to know all the details of the business you are planning to expand and grow. You need to put yourself in your lender’s shoes and assess the factors that they might find appealing. Displaying your expertise and paying attention to details about your field of business will definitely go a long way in improving your eligibility.
- Provide the right application
Sometimes common sense is the least obvious. Many creditors receive inaccurate information from applicants, which reduces the credibility and diminishes the legitimacy of the loan applicant. It is crucial to answer all the questions asked correctly, and double check all the details provided, such as home addresses, date of birth, names, company registration number and the like. A well-filled application form will ensure that the creditor has the right information about you, reducing the chance of your loan application being denied.
- Improving Cash Flow
Your cash flow is directly proportional to the liquidity position that your business enjoys. Lenders need to feel assured that there will be no bad debts. Therefore, timely loan repayment is an absolute necessity. Looking into the debt service coverage ratio (DSCR) will let you know the ratio of cash that you have available to service your debts in a ready manner. In order to improve and manage your cash flow, you can take a few simple steps. Cutting down on unnecessary expenses, reducing overheads, paying invoices in the name of your business, following a payment discipline and so on, can help you increase your odds for a business loan.
- Having a good Credit Score
Your credit score shows how skilled you are in managing your finances. Lenders will assess your personal credit score before accepting your application for a SME loan. Maintaining a good credit score gives the necessary assurance and confidence to your investor, making you more trustworthy and eligible to avail the loan. Your payment history, the size of your business, outstanding debts, the length of your credit history, credit utilization ratio, etc. are all determining factors for your credit score. To increase your credit score in business, you can do the following – timely payment of bills and other expenses, opening multiple credit accounts, and maintaining a 25% credit utilization ratio.
- Repayment Plan
When you apply for a SME Loan, you must have a well-thought repayment strategy to show to the lender. This will ensure that the creditor trusts you to repay your loan back, making you more appealing as a prospective borrower.
A little bit of structured planning, along with keeping in mind these simple tips will definitely increase your chances of getting small business loans from the desired lender. It will not only make you eligible for the loan, but will also go a long way in ensuring that your business grows exponentially.