Obtaining business loan is important because borrowing money is a requirement of almost every business regardless of whether it is a start-up or an on-going business.
By: Hitesh Khan/
All business owners – whether their businesses are large or small, well-capitalized or operating on a shoestring ‑ should develop a working relationship with their primary lender for obtaining business loan.
However, remember that the lender’s first responsibility is the financial health and profitability of the lending institution, just as your first responsibility is to your business. You would not jeopardize your business to save the lender, so don’t expect the lender to jeopardize the lending institution to save your business.
In obtaining business loan be mindful that your expectation should be that the only way the relationship will continue is if the relationship is in the best interest of both parties.
There are a number of steps the borrower can take to develop a relationship with the lender. The following are offered as suggestions for obtaining a business loan:
Select the proper lender
Shop around to find the right lender. Lenders have certain types of loans and businesses they like to work with and other types they prefer not to fund. Find out what types of loans and customers each lender is interested in serving. Your business may be too large or too small for some lenders. The lender may not have any experience funding your type of business. Most start-up businesses need lenders who understand their unique situations.
Make a professional loan request
When applying for a loan be prepared to present all aspects of your request so the lender can make an informed and accurate decision. Put in writing what you want to do. This may involve preparing a business plan.
Apply for the loan early
Don’t wait until you need funds to apply for the loan. This puts pressure on the lender and increases the likelihood of loan rejection. Making a loan request well in advance of the need for funds shows the lender you have good planning skills.
Establish a credit history
Borrow funds for short periods and repay promptly to establish a track record of proper loan repayment.
Get to know your lender
In your attempt in obtaining business loan, invite your lender to visit your business. Introduce the lender to your employees.
Keep your lender informed
Share your plans for the future. For a start-up venture, the new business will need to have a fully developed business plan to share with the lender. Included in this business plan must be a clear indication of how the business will be financed. The plan must show how the management team will make the business successful.
Don’t surprise your lender
If you foresee repayment problems, tell your lender right away. There may be a solution and the lender can be a helpful resource. Lenders would rather restructure loans for repayment than have to foreclose on the loan.
Over the years, financial lenders have developed several simple approaches to assessing the feasibility of making a loan. These approaches can be used regardless of the type or size of business involved. If you are planning to ask for a loan, use the following factors as a checklist to improve your chances of getting the loan. The process will identify weaknesses that can be corrected before you ask for the loan.
Getting approval for a loan is a good thing, getting rejected may be even better. Even after going through this exercise, the lender may reject your loan request. However, don’t take the rejection personally. The lender is in the business of making loans. But something in your attempt in obtaining business loan caused the rejection of your loan. Talk to the lender and ask why the loan was rejected. The lender may have identified a weakness in your business that can be corrected before it causes major problems down the road.
Many businesses tend to undergo certain financial constraints in the course of their development most of the times. When such times come knocking, many entrepreneurs consider approaching lenders and alternative sources of financing.
Business loans are fundamentally pretty similar to personal loans with a few small caveats. How a business structures its debt and manages its cash flow can be the difference between a successful business and one that ultimately fails.
Many new business owners make the mistake of taking out too many loans too quickly instead of exploring other means of structuring their business or securing financing. While business loans can be used at any point during a business’s life, it’s always better if you can minimise the amount of loans you have to take out until your business’s cash flow and customer base is well established.
There are several lenders ranging from banks, non-bank finance institutions as well as different financing sources such as crowdfunding sites available to the entire business industry. However, not all businesses are able to access business loans. This is because of several factors that many lenders put into consideration.
If your business is expanding and you are searching for different financing sources, it is a good idea to talk to loan consultants. Loan consultants can set you up on a path that can get you a it in a quick and seamless manner, as they have close links with the best lenders in town. They can help you compare various loans and settle for a package that best suits your needs.