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15 Apr
  • SFX Entertainment Technologies Pvt. Ltd (Content Curator)
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For a cash-strapped business, a loan is a financial lifeline that helps it get through a difficult time or grab a good opportunity. The right amount of capital at the right time can help a business to grow, expand its territories and increase revenues through better investments in promising projects. However, it is vital for companies to keep themselves financially fit and their books of accounts up-to-date before applying for any loan. While there are many options available to businesses to get credit, like bank loans, line of credit, etc. it is advisable for them to follow the tips mentioned here to qualify for SME loans easily.

Maintain a good credit score

A good credit score is an indication of good financial health. Repaying all dues on time and borrowing responsibly can help in increasing the credit score. Remember that lenders look at the credit score to review your financial position, and a good credit score helps you in easily qualifying for the loan.

Anticipate your lender’s criteria and lending process

Anticipate your lender’s lending criteria and their lending process to be better prepared at every stage. Look at things from the lender’s point of view to understand how they will review your loan application. Lenders normally examine your assets in the business, investors in the company, how long the business has been running for, financial statements, outstanding loans and cash flow estimations. Meeting the requirements of the lenders will make your application stronger for qualification.

Present your financial statements and cash flow estimations

Financial statements and cash flow estimations are among the basic documents that lenders look at to evaluate the financial position of a company. So, prepare your financial statements with due diligence and carefully estimate the cash flow, to present an honest outlook of where your loan amount will be used and how returns will be generated. Present a strong business plan, showcasing your ability to repay the loan on time.

Arrange for collateral

Many business loans require collateral as a back-up. It can be any asset or inventory that can be seized in case of non-repayment of loan. Some loans require a guarantee from the owners or a guarantor for the loan. Also, each lender has different sets of requirements, and so, research beforehand about these requirements to make arrangements accordingly.

Documents required

Most loans require you to submit copies of income tax returns, financial statements, registration certificates, bank statements and cash flow estimations. Check the documents required while applying for a loan and prepare them well in advance to prevent any wastage of time during the loan application stage.

Analyse key terms of the loan

Prepare a possible list of financial institutions where you qualify for the loan and compare them in terms of rate of interest charged, payment terms, collateral or guarantee requirements and any other fees charged. You may want to look at the loan amortization chart as well, to get a better idea of how much interest and principal payments can be made from a cash flow perspective.

Conclusion

These days, there are many options available for small and medium enterprises to take loans for funding their businesses. So, you should be aware of the different kinds of loans, short term and long term, and those with and without collaterals and guarantees, to take a better and informed decision. Knowing about how lenders will review your loan application and anticipating how they will proceed will increase your chances of getting qualified. So, get ready to boost your business by actively preparing yourself before applying for a loan. 

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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