There is a myth that getting a business loan is very difficult. You can find many people sharing their experience of not getting a business loan quickly, which is incorrect. Getting a business loan is much easier than getting a home loan or auto loan. The documentation required for a business loan is also the bare minimum. You only need to take care of some key factors to avail of the facility without any hassle.
Clear business plan
When you are seriously in the business, you already have a roadmap in your mind. Just note it down on paper, and you will have your business plan ready. Financial institutions look for a proper business plan representing the businessman’s idea, ability and planning. Make sure your business plan has specific and attainable goals. The assumptions made should be realistic with a sustainable growth forecast. With a proper business plan, you can answer more than half of the questions of the lender.
Business track record
Other than the future projections, another crucial aspect is past performance. If you have managed any business on your own, the financial institutions will be interested to know how you had managed that. Even if this is your first venture, still your previous experience and expertise are considered. The only thing they are interested in is whether you are capable enough to repay the loan timely.
Additional Read: How to prepare your organisation for a Business Loan
In any loan, your credit score plays an important role. It is more important in the case of business loans. Based on it, the lenders not only decide whether to sanction or reject the loan application. The rate of interest also depends on the credit score. Usually, any score below 500 is considered sub-par, resulting in either rejection or a higher interest rate. Because this credit score represents your financial discipline, you should be extra careful keeping it above an optimum level.
Although it will be covered in your business plan, revenue is discussed separately, as it is the lifeline of your business. Let’s face it: without revenue, your business will not be able to survive. And the lenders will be extra cautious in the evaluation of your revenue projections. Ensure they are realistic, and the chance of achieving them is high. Also, they should be high enough to repay the loan and give you a good return.
Additional Read: When is the best time to get a Business Loan
Quality of cash cycle
The cash cycle is significant for existing businesses. The quality of the cash cycle should be good; particularly, the realisation of debtors should be at an acceptable level. The bad debts or write-offs should be managed well. Once you maintain a good level in this area, it shows the strength of your business which in turn helps the lenders sanction your loan.
Businesses are inherently risky, and lenders remain cautious about their money. However, that does not mean that business loans are impossible to get. If you show them good potentials, the lenders will be more than happy to sanction your business loan.
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