How To Apply For A Business Loan And Get Approved

common mistakes applying for a business loan

No matter the size of new business, every small business requires finance at some point of time. If you want to obtain a loan for your business, you must first prepare a business plan. After deciding on the required loan amount and manageable interest amount, you can choose the business loan of your choice. A business loan provides financial aid to business of all sizes (i.e. small businesses, medium-sized businesses or start-up businesses). It is ideal for small business owners who need funding to enhance or expand their business. When you need a loan for your business, you must adopt a strategic approach. Cautious planning is necessary for ensuring success in obtaining business loans.

Business Plan

When you are considering applying for a business loan, it is important for you to take enough time to create a convincing and detailed business plan. Your SME business plan should include information, which will assist your finance broker as well as the lender or credit provider in providing you with the right type of finance and advice. Here is a list of information you should include in your business plan:

>> Your business structure

>> The purpose and goals of your business

>> Your past and future plans for your business

>> The profit and loss projections and cash flow forecasts of your business

>> Your marketing strategy (i.e. the products or services your business provides)

It is also important to state in your business plan the specific purpose for which you want to use a business loan.

Decisions to Make

Once you have assessed your needs for a business loan, you should investigate which finance products suit your needs for a business loan as each loan has varying features for you to choose. To help with this process, here is a list of things to consider and which you can discuss with your finance broker:

>> The loan amount required

>> The loan term (i.e. the period in which the loan will need to be repaid)

>> Interest rate type and repayments (i.e. fixed or variable)

>> Loan fees, and

>> Loan security (i.e. the type of security offered by you)

Finance Products

There is a variety of business loans available to choose from. Here is a brief summary of common business loan products specifically designed by lenders/credit providers for business owners, which can assist your individual situation as a business owner:

Commercial Bill Facility

A commercial bill (also called a bank bill or bill of exchange) is a flexible credit facility that can give your business a short-term or long-term injection of cash. The finance provided by the commercial bill can help your business in the event that you may need to solve an unexpected or urgent problem, and you do not have the required cash flow. You agree to pay back the face value of the commercial bill plus interest to the lender/credit provider on a specific maturity date.

Overdraft Facility

The purpose of establishing an overdraft facility is to provide working capital for your business in the short-term, before receiving income. An overdraft facility should not be used for capital purchase or long-term financing needs. The overdraft is a normal trading account facility for your business, whereby the lender/credit provider permits you to use or withdraw more than you have in the trading account. But, only up to an agreed amount and any negative balances typically need to be repaid within a month.

Line of Credit

A line of credit (also called an equity loan) can provide access to funds by allowing you to draw an account balance up to an approved limit. The loans are designed as a long-term debt facility and are usually secured by a registered mortgage over a property.

Fully Drawn Advance

This is a term loan with a scheduled principal and interest repayment program. The loan provides access to funds upfront, which can be used for funding long-term investments that will expand the capacity of your business, such as purchasing a new business or even purchasing equipment. Fully drawn advance loans are usually secured by a registered mortgage over a residential or commercial property or a business asset.

Short-Term Loan

A short-term loan can provide short-term funding needs for your business. You can take out a short-term loan if you want to take advantage of a very quick financial opportunity or to help you get out of a financial cash flow crisis. The loan offers a fixed sum advance and requires a periodical interest charge to be paid by you. Short-term loans typically require a security to be provided.

Business Equipment Finance

If you decide to expand your business operations and take benefits of potential tax advantages, you should consider taking out business equipment finance, as the finance arrangement allows you to buy, lease or hire a new vehicle or specialized equipment (e.g. cars, trucks, forklifts, printing, computing, medical and office equipment as well as plant equipment and machinery). Typical finance arrangements to consider for business equipment finance are asset lease, commercial hire purchase, chattel mortgage or equipment rental. Truly, there are several finance products available in the market to help business owners. When you seek out finance for your business, don’t be in a hurry. Consider all the alternatives in detail and then choose the one that is right for you and your business.

All businesses need funding to get up and running. One of the best ways to fund a business is through receiving a business loan rather than using one’s own personal finances. However, business owners can sometimes apply for a loan without knowing what the lenders are looking for. This article breaks down what to do when a business loan is rejected and the most common reasons why business loans fail to be funded. Being a business owner is exciting and full of adventure. One of those adventures is finding the funding to begin, and then once started to keep the business afloat. That means looking to lenders for financing, and sometimes facing rejection. Applying for a loan can be scary, even for the most experienced business owner. But rejection doesn’t always mean the end.

How Business Loans are Processed

When you apply for a business loan, whether you do it online or in person, a computer is usually making the most important decision in your life. Business loan applications are usually pages long and filled with information. Whether you sit with a loan officer, or fill out the information online, the moment you hand in those pages or press send on the keyboard, all of it is fed into a computer to analyze the stats. There are reasons banks like the idea of an impersonal computer judging the criteria of a loan.

Using computers takes the emotion out of the decision making process. A bank loan officer may be swayed by a compelling personality, or even influenced by what they think is a great business idea. Computers are not swayed by anything but the facts. However, those facts can vary in severity. Unfortunately, as good for banks as the callus judgments are, that means your loan may be rejected for the smallest of reasons.

What to Do When a Loan is Rejected

It is okay to be upset, but don’t let a rejection mean you stop trying. Before you sit down and try to find alternate ways of financing your business, your first step is to make a personal appeal to the rejecting lender. The Second Try is a Charm Here is where persistence can really pay off. If you appeal a rejected business loan application, it is more often looked at by an actual person instead of a computer. The bank official will take the time to go over exactly why the loan was rejected and determine if there is any way to rectify the situation for you. It may mean getting some extra information, or explaining an inconsistency. It can even be as simple as making sure your business is listed properly in the directory services, or adding a phone number you may have forgotten to list.

Applying for a Small Business Loan Online or In Person

The mistake a lot of people make is thinking that it makes a difference if they apply for a business loan in person or online. Many business owners avoid sending in applications online, because they think the way banks handle loans applied for in person is different than those submitted online. The initial decision is made the same way either way. However, in one way, applying in person with a banking official can make a difference. It is a little more difficult to appeal a rejection from an online business loan application. It is still possible, but you may have to look harder to find out how to go about the process of appealing an online rejection. When you apply in person at a brick and mortar bank, it is as simple as walking in and talking to the loan officer you dealt with to submit the original paperwork. That may not be the person who reviews the rejection, but they will be able to begin the process for you.

The Common Reasons Most Business Loan Applications Fail

Setting aside the possibility of extremely simple solutions to a failed business loan like missing a line in the application, or needing additional information, it may take a little longer to fix some of the most common reasons a business loan application is denied. There are many reasons a loan application can be rejected, but the most common are:

Bad personal credit

Bad business credit

No, or not enough, collateral

Not asking for enough money

Cash flow difficulties

While the above reasons may seem insurmountable, all are repairable. It may take a little time to fix most of the above problems, but once you know what a bank has an issue with, you can take the steps to change them. You will always be given a reason for a loan rejection. If you do not understand the reasons, you should request clarification. Even if you do completely understand the reason it is a good idea to ask for more information and try to get a personal response to help you avoid any small problems the next time around–and there should be a next time. Even if you are rejected for what seems like a very serious problem like bad credit, do not let that stop you. One of the reasons above may surprise you, but banks may reject your application for a business loan if they feel that you are not asking for enough money. That’s right, they may want you to ask for more.

The reason is simple. If you are not asking for enough money to meet all of your challenges, your business is likely to still fail in spite of the loan they give you, and then you will not be able to pay off the money you owe the bank. This is both simple and complex to fix. The obvious way to fix not asking for enough money is to ask for more. However, it is better to be sure you are doing it right the first time. Sometimes business owners do not ask for as much money as they know they will need, because they think banks are more likely to give smaller loans than a large one. However, not asking for enough can cast a shadow on your ability to run your business. It more likely appear as though you don’t fully understand what is involved in your business, and what it will take to make a profit.

The bank’s misconception of your SMB will be hard to clear up. Make sure you have a well-prepared business plan that fully shows how you arrived at the figures you are requesting, and how those figures will work to make your small business a success. Most importantly, ask for that amount, or show how you will find the additional funds when needed.

Small Business Loan Conclusion

Taking the small business loans can be a tricky affair and also understand the inches thick loan documents is not also possible always. So before applying for any loan, you must ask a few questions to your loan broker in order to know about the loan in a better way.