Category: Loans


3 Essential Methods That Companies Can Use to Get Ready for a Loan


It is common practice for the majority of small businesses and start-ups to apply for a loan as soon as possible. The extra financing is usually used to give the company a boost by purchasing real estate, equipment, or paying for services and advertising. Regardless of the reason, the ability to get a loan without too much hustle is extremely important for a small business that wants to stay ahead of the competition. This having been said, lenders tend to be very cautious when it comes to deciding if a small company should get a loan or not. In most cases, this is a result of the short financial history of the company. If a business has not had time to prove that it is financially stable and that it will continue to have profit in the future, then it might be difficult to borrow money.

Luckily, there are a few strategies that have been proven to work, even if a business is only a couple of months old. However, it requires discipline and careful planning. Here is what you need to know:

  1. Keep Your Financial Records as Clean as Possible (This Includes Your Financial File, Not Just the Company One)

Preparation is extremely important when it comes to ensuring that you can get a small loan, and this requires business owners to keep 4 company aspects in mind:

  • Time in Business – This refers to the amount of time that the company has functioned. Lenders are regularly much more trusting of companies that have been in business for at least one fiscal year because this gives them time to prove that it can consistently make a profit;
  • Cash Flow – Cash flow refers to the amount of money that enters and leaves the company’s bank accounts. At this point, it is important to mention that business owners must make sure that every last penny is accounted for and properly marked in the company’s financial records;
  • Credit Rating – Each credit reference agency has a slightly different way of calculating this value and it is important to check with all of them to determine how likely it is for a company to get a loan;
  • Collateral –Almost all businesses are required to offer collateral to borrow money. Whether a company applies for a line of credit or a regular loan, it will have to secure it against its property or the property of the owner;
  • Have all the Documentation in Order before You Apply for the Loan

The lenders will request that you present bank statements from the last 6 months, proof of profit from the last 2 years, tax refunds that you might have collected, as well as information regarding all the current debt, leases, and credit adjustments that the company has received in the past. Send an email to the bank inquiring what documents are needed for the specific type of financing that you need. Once you have the list, gather all the documents and go over them in order to ensure that no mistakes slip by.

  • Target the Correct Type of Financing for Your Company

Look at the current deals that the lender is offering and determine which one caters to the needs of your company. This also implies taking into account that some types of business-oriented loans may have restrictions that your company cannot get past. Furthermore, certain forms of financing, such as lines of credit may only be available to companies that have gone through at least one full fiscal year.


5 Issues That Cause Small Businesses’ Loan Request to Be Rejected


Starting a business and keeping it on track can be extremely difficult in the first few years, especially if the financial climate is less than favourable. Whether you need the money to pay unexpected expenses such as repairing a piece of equipment, or you are looking for financing to upgrade your existing ones, loans are the best choice. Furthermore, most banks, as well as a large number of private lenders try to make it as easy as possible for small businesses to secure the financing that they need. However, this does not mean that everyone who applies for a loan will automatically receive one. Banks still hand-pick the borrowers that fit their requirements best.

This may mean that if you apply for a loan and the financial status of the business is not appropriate, your request will be rejected without any explanation. If this happens, there are 5 reasons that you need to take into consideration. Here is what you need to know:

  1. Bad Credit

This is the most often encountered issue. If a business has not yet ended its first fiscal year, the lender may not have enough information to assess the risk of approving the loan request. This would normally be made clear right from the start when the borrower sent the application. However, in certain situations, the lender may look at the credit file of the owner in order to make a decision. If the owner has bad credit (or the business, for that matter), the loan request may be rejected without any clear explanation.

  • Not Enough Cash Flow

Businesses that have humble beginnings may not have enough cash flow to have their loan request approved. This, however, can be circumvented by requesting a different type of loan. In most cases, if the lender refuses the loan, for this reason, he might agree to a smaller one, or one that has different terms and conditions.

  • Not Enough Time in Business

Lenders need to analyse the financial history of a business in order to calculate its credit rating and decide if they are to approve or reject the credit request. In most cases, getting a loan requires at least one full fiscal year to have passed, however, larger forms of funding such as a line of credit may require several more. In some cases, this can be circumvented by offering a valuable property as collateral; however, this is not always possible.

  • Not Enough Collateral

Generally speaking, business loans require appropriate collateral. If the lender concludes that a business does not have a property that is valuable enough to serve as collateral, he may reject the loan request.

  • Lack of Preparation

There is more to getting a business loan than simply filling out a loan request form. Lenders regularly require businesses to submit additional documents such as written business plans, financial statements, projections, bank statements and personal and business credit reports. If any of these are not in order, the loan request may be rejected.

Of all these documents, the most important ones are the business plan and the projections. Lenders need to see that the loan request comes from a business that has a clear financial objective and that the owner knows how to use the financing to increase profits. Make sure to include as much documentation as possible, as part of your loan request. If you are currently developing a new product or service, mention it and explain how it will benefit from the loan. Also, specify how the product will help the business earn money.