Every business needs finance to start up, manage and expand, no matter how big or small. However, large businesses are usually more advantaged when it comes to getting bank loans due to a long-standing credibility.
Getting a loan for small businesses is not an easy task to accomplish, nonetheless, there is hope. As long as you run a credit worthy, high-scoring small business and meet the requirements, you can achieve any amount applied for.
Where do I get a loan?
Seeking loans from banks, partners, family and friends have always been the usual ways of getting loans. But in all, banks offer the lowest interest rates and are trustworthy lenders. Although in Africa, more than 70% of bank loan applications from small businesses are not approved, and many small business owners give up after two or three unsuccessful applications, you can learn from every turned down application, re-strategize and reapply.
These tips will help you get the next loan you apply for
1. Do you really need a Bank Loan?
Most small business owners make the mistake of asking Banks for money at the earliest stage of their business. A reputable financial institution is less likely to invest in a business that has not tested the waters. For startups, do not you really need a loan? Building your business to a particular stage gives you a better idea of how much more you need to put in, not forgetting that with bank interest rates, your business can go bankrupt if it does not make a profit and in time.
2. Know the type of loan you can easily access
Basically, there are two main types of small business loans: overdrafts and term loans. An overdraft allows you to withdraw money from your bank account than you currently have. A perfect example is the GTSalary Advance platform. This scheme dispenses loans [of not more than 50% of their monthly salary] to working class individuals with short term capital needs. An overdraft is usually flexibility with a pay-as-you-go interest rate. On the other hand, a term loan starts to accrue interest from the moment you receive it; whether you use it or not. It is a high risk loan and is best for long-term projects.
3. Study your Prospective Investor
Your business needs to be in line with the interests and goals of the financial investor you plan to approach. Some banks invest only in large scale businesses, therefore might see your business as too small a fish to fry. Also, your business might meet all the requirements needed by the bank except one, which you probably missed out during your background study of the bank. Know your investor thoroughly before you present your business to them.
4. Write a detailed Business plan
Your business idea is as good as it looks on paper, every detail counts. Your business plan is required to be well-informing and convincing, with facts and figures to back up your projections. Make it simple, understandable, realistic and let your plan answer questions like;
- What is your business about?
- Is there a market for it?
- What is your unique selling points and marketing plans?
- What background and experience do you have to make the business work?
- What will the loan be used for?
5. Include Financial Records
Banks are interested in investing in businesses with good credit history; they want to see your money management skills. If you don’t have any in your records or a shabbily done account records, you might just have another NO staring back at you. Present clear and genuine financial records to stand a better chance. You can also add a purchase order [if you have any] as proof that people are interested in patronizing your business.
6. Offer a collateral
Financial institutions often insist that the value of the collateral you pledge is the same value (or more) of the amount you are applying for. This is usually a challenge for most small business owners but can be handled if you are a credible individual/company. Note that using your property as collateral for a loan should be a carefully thought-out decision.
7. Back your application up with a Guarantor
Your application will require a guarantor, who would be held responsible by the bank, in a case where you do not meet up with the payment plans. Having a guarantor assures the bank that the risk is worth a try and increases your chances of getting a loan.
All the best in your application! We would love to hear your success story in the comment box below.