There is such a thing ‘good loans’ – and lenders are looking for the right borrowers to give this loan.
By: Hitesh Khan/
A business loan can provide the capital needed to grow your business. But you must be prepared with a business plan and a thorough knowledge of your credit history. Be mindful that lenders want to make loans injecting you with the the capital needed to grow your business. Loans are a main source of revenue for them.
When speaking to a lender they will qualify that statement by saying that they want to make “good loans.” So what makes good loans?
When going for good loans you cannot over prepare:
- Prepare a well-written business plan. Preparing a business plan should take some time and is a thoughtful process.
- Establish a relationship with a lender. If you don’t have a relationship, start cultivating one now. And make sure the lender is friendly to small business.
- Know what your personal credit report looks like. All lenders will request a credit report – know what yours says. Credit reports can contain errors. Clear up any errors before going to the bank. If your credit report reflects unfavorable data, be prepared to discuss it. Don’t be caught off guard.
When going for good loans, you must know the Five Cs of Credit and how you stack up against them.
These guidelines are the acid test for obtaining good loans:
The Five Cs of Credit
Your bank is in business to make money. Consequently, when a bank lends money it wants to ensure that it will be paid back. The bank must consider the Five 5 Cs of credit when they give out good loans.
Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business; the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships – personal and commercial – is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.
Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding. If you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.
Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that – someone else signs a guarantee document promising to repay the loan if you can’t. Most lenders may require such a guarantee in addition to collateral as security for a loan.
Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment or inventory? The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.
Character is the personal impression you make on the potential lender or investor. The lender decides subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience of your employees will also be considered.
Businesses owners ought to remember that you need to borrow when you do not need money. When your business is struggling and you need additional funding to tide over a tough patch, then you will find that your access to funding is completely cut off and end up with very expensive funding.
How to Secure a Personal Loan Quickly
If you have limited capital and are searching for a personal loan to expand your business, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.
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