Would you like to know where to get business loan, how to service a business loan, how to calculate the exact amount of loan that your business needs and what lenders are looking out for so that you will be better positioned that your counterpart?
If yes, this is that very article you’ve longed forward to seeing on this blog. Knowing when to scale a business with a loan is very important if you truly want to be a successful entrepreneur.
According to an article published in the Premium Times, over 70 percent of private enterprises in Nigeria have little or no access to credit.
However, this is expected to change with the introduction of the Credit Reporting Act and the Secured Transactions in Movable Assets Act in 2017. These new acts will give Nigerian business owners better access to affordable credit. If you are thinking of getting a business loan, you can take advantage of this favorable change to secure a good financing deal. Here’s how.
Determine the Purpose of the Loan
There are many reasons why a business needs to apply for a loan, some of which are good and some bad. Good reasons include financing new equipment, long-term software development, real estate, and large seasonal sales variances. Examples of bad reasons include financing acquisition of non-essential assets, ongoing losses, and office build-outs.
But here’s what experts advise that business owners should do: only seek financing if it is necessary for the success and growth of your business. Otherwise, make do with what you have.
Calculate the Required Loan Amount Accurately
If you do not ask for a large enough loan, you may run out of working capital sooner than expected. On the other hand, overestimating the amount you need can make a lender question your assumptions and credibility.
Make sure you have a properly calculated budget that is supported by reliable financial projections. You can use a business loan calculator to come up with a more accurate estimate.
Know What Lenders Look for
Lenders will look at your personal credit score to judge your reliability in paying back the loan. Other than that, they will also take a number of things into consideration, including your debt-to-income ratio, cash flow, and time in business. Having good scores in all these categories can significantly boost your chances of getting your loan application approved.
Find the Right Lender
There are many ways to get business loan these days, with the most popular options being commercial banks, financial institutions, and local community banks or lenders.
Commercial banks usually offer the best loan rates, but they have stricter eligibility requirements. You can also try alternative financing options such as micro-lending, online lending, and crowdfunding. It is important that you spend some time doing research and comparison shopping to find out which lender is the best fit for your financing needs.
Prepare the Loan Application Package
The loan application package is the paperwork you submit to the lender when you apply for a business loan. Generally, it should include:
- Business plan
- Financial results and projections, such as balance sheet, cash flow, and profit and loss statements
- Personal financial information, including tax returns
Also, if you have an online presence, try to make your website or social media accounts look more impressive before you apply for a business loan. Lenders will evaluate your online presence as part of their research.
Getting the right business loan requires substantial time and effort. However, it is a worthwhile endeavor because it can significantly reduce your financial obligation and business risk.