The financial services market is overflowing with offers of loans – for any term, any amount, and even with a bad credit history. In reality, not everything is so sweet – a high-interest rate, a tough penal system and the risk of being left with large debts – this is the real picture of lending.
Next, let’s talk about how a business can get a lucrative loan offer.
Define goals – why do you need loan funds
You just need money – this is not a financial goal. When determining the need for a loan, answer yourself the following questions:
- What amount is needed and why exactly so much.
- What will this loan give me, in what time frame can I achieve this goal.
- What will happen if the loan is not given.
- For what funds will the loan be repaid, in what time frame with the best and worst case scenario.
- What is the financial position of the company during the period of loan repayment and after it is paid off.
- What funds will be used to pay off the loan.
Clear, honest answers to these questions will help you determine whether you really need a loan, what benefits the business will receive from such financing, what type of loan program is best suited.
We close existing debts to the maximum before applying for a loan
Why it is necessary to do this: the more chances that the bank will approve the application, it will be easier to repay the loan, since there will be less financial burden.
If an entrepreneur has tax debts, open enforcement proceedings, blocked accounts, then no bank will approve the loan. Perhaps MFIs will lend money, but this is an extremely unprofitable option, because there are too high interest rates.
The presence of debts and executive obligations is the first thing that the bank service will check when considering an initial application. And if something is found wrong, then the application will be rejected.
Checking if there are business benefits
Perhaps your business has an up-to-date state loan program on concessional terms. There are many of them now – both at the regional and at the federal level, there are industry-specific ones from the state.
You can find out up-to-date information on preferential lending programs on regional sites for supporting small and medium-sized businesses, consult the Federal Tax Service or the MFC.
Please note that when receiving state aid, you will need to report to the regulatory authorities about where the money allocated for business development was spent.
Check what offers the financial market is currently giving
Do not take the first loan you come across. Explore several lending programs – somewhere there may be a better rate, somewhere a more convenient payment schedule or the ability to repay a loan without interest.
After such an analysis, 2-3 loan products remain, from which it is already easier to make a choice.
If you do not know what is better to choose in the end, then it is better to consult a broker, credit manager or lawyer.
Tidy up accounting
The bank will check whether you have receivables, unsettled payments, loans not closed on time, overstocked warehouse. And the trouble is that when the bank finds all these problems, there is nothing left for the loan – after all, such a check is the final stage in obtaining a loan.
The most important thing for a bank is the financial performance of your company. If there is a loss in the balance sheet, then no normal bank will give a loan. Why? Because it is obvious that a business needs a loan not for development, but to cover losses.
And if you show the bank charts showing the growth of profits, revenues, financial stability, then the chances of getting a loan increase significantly.
Prepare a business plan
In a business plan, you need to clearly state for the bank where you will spend the money that it will lend to you.
You can develop a good business plan in 2-3 months, but not earlier. Take this time into account when applying for a loan so that it will take another 1-2 months to get a loan. For example: you need a loan to launch a new product line for the New Year holidays. You need to start developing a business plan at the end of the summer at least in order to have time to prepare the documents and go through all the stages of approving the application at the bank.
How to get a loan if the business is a beginner?
Many banks do not mind working with start-up entrepreneurs, but credit conditions will probably be tougher. So, most lenders do not issue a loan if there is no collateral. And since a start-up business may not have it, it is worth considering state preferential lending programs, grants, sectoral benefits or regional ones.
Checklist: what to do before applying for a loan
- Decide why you need a loan, how much money. Where they will be spent and what the company will receive from this loan.
- Close debts before applying for a loan.
- Find out what benefits your business has.
- Put your accounting in order.
- Develop a sound business plan.