How to Improve Your Chances of Getting a Business Loan Approval
You need money to do any business in the world. One of the common ways of obtaining finance is through Business Loans. Most business entities avail a Business Loan at various stages in its journey. You need funding to meet working capital requirements, business expansion, purchasing inventory, meeting operational expenses, and so on.
New businesses require Business Loans to augment their capital resources. Various factors go into the approvals of Business Loans. Here is a list that you should keep in mind when you Apply for a Business Loan for new business or even to improve your current company.
Planning is of Utmost Importance
- You need to plan your business proposal well. It can help to convince your lender to approve your loan. Concentrate on the following aspects while preparing a business plan:
- Objectives of the business
- Revenue Generation plans
- Development and Marketing strategies
The lenders place greater emphasis on the revenue generation. Therefore, you should have a clearidea as to how to generate enough revenue to repay the loans and sustain the business at the same time. A good business plan can solve most of the issues you could encounter when you apply for a Business Loan.
Have Your Documents in Order
Banks rely on documents alone while processing any Business Loan application. Of course, your capacity and intention to repay are also important factors, but your documentation should be perfect for you to get business financing. Lenders look for various documents like your KYC documents, business proof, a couple of years’ income tax returns, audited financial statements, bank statements, and so on. Have them ready and produce the same on demand. It can improve your chances of getting loan approval.
Concentrate on Your Cash Flow Projections
Banks look towards future projections while approving Business Loans. Your past is important, but it does not provide any purpose to the bank. It is at best a benchmark figure. Your Business Loan approval depends on your future projections alone. Whole projecting your cash flows, be realistic and in tune with your past achievements. Your business history plays a role in this regard as it enables the bank to judge whether you will be able to meet your projected levels of business.
Keep All Financing Options Open
Different lenders have different methods of evaluating your business creditworthiness. Therefore, it is better to keep all options open. You should not limit your applications to the conventional lenders alone. Explore the services of NBFCs (Non-Banking Financial Companies) and digital lenders. Compare the features before choosing the right Business Loan for you. You need to look at various factors such as rates of interest, provision of collateral, and so on.
Assess Your Credit History
Banks look forward to dealing with businesses and persons having decent credit histories. Check out your credit score with the credit bureaus before you apply for Business Loans. A low credit score can act as a disqualifying factor. It is better to assess your credit score as well as that of your business to ensure that the bank does not reject the proposal due to lack of credibility.
Be Aware of What the Lenders Look for
Lenders have a different outlook when it comes to evaluating your business risk. They have the experience of dealing with other clients doing the same business as you are. Therefore, they know the market trends and are aware of the risk factors your company has.
You should look at your business from the banker’s angle and resolve your problems. Be aware of the risky traits like low vintage, weak accounting system, delay in collection or receivables and payments to suppliers, defaults in your credit history, generation of irregular revenue, and so on. Have your risk mitigation policies in place. It can convince the bank that you are a safe borrower.
We have seen several factors that every business entity should consider while submitting their proposal for a Business Loan. You should show an intention to repay the loan and support it with adequate documentation. Prepare your project carefully and look for the risky traits and address them promptly. Submit your documents as called for by the bank. It improves the chances of approval of your Business Loans.
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