All businesses aim to get an instant approval for their business loan applications. The smooth operations and expansion of your business hinge on the availability of these funds, and disapproval can put you out of the competition. The financial needs may include purchase or lease of premises and equipment, marketing, technological upgrades, and daily operations.
Credit from non-banking financial companies (NBFCs) is rising, recording an increase of 18% in FY17 from the previous year. With many business loan applications reaching their desk, you have to make a strong pitch to get those funds.
Here’s how you can make the right pitch for your business loan
1. Adequate cash flow
Inadequate cash flow is a major irritant for the lenders, including the NBFCs. They assess the liquidity of your company to know whether you can repay their debt. Some important liquidity ratios include the current ratio and the debt-service coverage ratio. These ratios should be at least 1. The current liabilities include loans, salaries, and bills. Cash, inventory, short-term investments, and payments to be made by the clients add up to your current assets. You need to monitor your business income and liquidity to avail of the business loans. Some of the current assets include cash, short-term investments, inventory, and payments yet to be made by the clients. The significant current liabilities are bills, salaries, and loans.
Tip: Your business should have adequate cash flow and the required liquidity ratios.
2. High Credit Score
A high credit score expedites your chances of getting business loans. You need to watch for those red flags and monitor your credit score regularly. It is essential to avoid loan defaults, negative consumer feedback, and opening several credit accounts.
Another aspect that can affect your credit score is the amount of credit utilization. The general rule for credit utilization is 30%; however, it varies with different credit information bureaus. Equifax flags 50% usage of your total credit limit as green. If your credit utilization increases, your credit score starts slipping.
Tip: Maintain a high credit score for your business and get a higher loan limit.
3. Business Plan
The first impression is the last one, and your business plan should be strong enough to seize the day. A comprehensive business plan includes several aspects.
- The projects your business has catered to, and the ones in your pipeline. Your success story and list of contracts make a good impression on the lenders
- How you market your product or plan to increase your customer base is also critical
- A marketing plan, and budget, can add depth to your business plan
You should be able to map realistic sales projections, and your loan application should match with them
- Lenders might want to know how you would ride the different challenges in your industry
For example, most solar equipments have been piled up at the ports because customs officials are demanding an import duty of 7.5% towards the end of 2017. The government will have to take a call on the classification for solar models, which can delay the release of the equipment. So, companies from the solar industry who can explain how they will tide over this will have an edge.
Tip: Prepare a foolproof business plan
Additional Read: Reasons Your Business Loan Was Rejected
You need certain documents to avail of unsecured business loans. Missing documents can put your business loan application in jeopardy. Among the basic documents, you need KYC, business vintage proof, and relevant financial documents.
Tip: Keep all the important documents ready.
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