Due to a volatile economy, tighter financing norms and traditional lenders’ fear of an increase in their non-performing asset ratio, many small businesses in Singapore and across the world are currently struggling to get financing to establish a solid cash flow or expand.
However, by doing certain things right, you can still improve your chances of loan approvals.
Things That Will Accelerate and Increase Chances of Loan Approvals
- Maintain operational transparency and records: Maintaining documentation for all valid transactions is extremely necessary, not just from a taxation perspective, but also if you’re planning to apply for a business loan. Your accounts, tax documents, receipts, and invoices should be up to date, always. If you’re too busy to maintain your book or track all the daily financial transactions and deals, put a professional accountant in charge.
- Build up a credit history: If you own a business which has not even completed a year, you may find it difficult to get a loan from a traditional lending institution. If your business has been in operation for a few years, and you have taken loans for the purpose of building a solid credit history for your business, remember that settling the outstanding balance on time is important. Most lenders will glean all credit records and financial transactions completed over the last few years. As a new business, if you don’t have a decent score, chances of rejection could increase significantly.
- Know which collateral to put up: Most traditional lenders will require a collateral in order to sanction a loan. The quantum of the loan will usually depend on the value of the collateral. Identify the collateral that you want to pledge. Is it real estate, a company vehicle, or some expensive equipment? Also, try to take a loan lower than the credit limit granted to you.
- Submit a plan which outlines how you intend to pay back the monthly dues: Most banks would look at a proven cash flow before they consider your application, especially if your business has been in operation for a few years. Create a detailed plan to demonstrate how you plan to pay back your loan dues. Consult a financial expert if you’re unsure about how to proceed.
- Provide your lender the necessary details: Most lenders will ask you to justify the loan amount that you have asked for. Don’t withhold critical details about your business operations or plans. Provide a solid reason to strengthen your application and document it clearly to make it easier for the lender to assess the application.
- Look for the right lender and loan product: Comparing your options carefully will help you find a willing lender and a product that matches your plans. Applying for a business loan when all you need is a cash advance or a credit line, may slow down your expansion plans or weaken your business propositions. Compare between different products and lenders to identify the most suitable option. Knowing what you really need will also help you comply with the requirements better because you can make the right preliminary arrangements.
What Are Your Options Apart From a Business Loan?
- Personal loan: If you’re a director, proprietor or a business partner, you may be able to use your credit history to secure a personal loan that can be utilised for the business. However, make sure that it is a short-term loan because if you fail to pay back the dues, your personal and business credibility will suffer.
- SPRING Singapore Micro Loan Programme: Apply for this loan if your loan amount doesn’t exceed S$100,000. Your registered company should have at least 30% of local ownership and a turnover below S$1 million.
Obtaining a loan is just the beginning of a much more complicated journey. Channeling your funds towards the funding of your business operations and growth is more important and will take a lot of planning.