Entrepreneurs face a lot of difficulties when getting a business loan, so they need to stay informed about all factors that may influence the final result of their application. This research may be the detail that makes a difference between business failure and success.
Fortunately, banks have begun to publish what information is taken into account when granting a business loan. Financial institutions do their best to dig the past, which means you should put your documents in order.
Read on to see what things you should keep in mind!
What your business does
The specifics of your company are going to influence how fast you obtain a business loan. Entrepreneurs have to make sure that the financial institution that they contact for a loan understands what their companies do. One should describe the company’s purpose and activity in short. This description should also contain what benefits the products and services offered by the company have for the target audience that you have set.
Your business’ industry
An investor or bank will take into account what industry your business will in. Your business’ industry can influence how easy or fast you obtain a business loan. There are industries which are saturated with businesses that are already existent and there are other industries that are in need of startups. And some business’ that are going to be created industries of their own. Banks tend to finance industries that don’t shut out new businesses, such as media, construction, and technology. If you have a brilliant idea in an industry that is high need of a shakeup, you may want to calculate your payments based on the loan amount you’re looking for — before you ask.
The customer base
If your business sells products or services directly to small regional players, the change of getting a loan might be reduced. On the other hand, if your business is selling products and services to large suppliers of national scale, the chances of receiving a loan can increase. The customer base is another influence towards the decision a bank will make before they approve your loan. Focus on how you can scale your customer base before you speak with the lender so that you can apply them to your business’ advantage.
The cash flow cycle
The cash flow that your company has is critical in obtaining financial support from a financial institution. The cash flow determines whether the loan will be beneficial for the company in the long run or not. Using a diagram to list features of your company’s cash flow should be the easiest way to provide bankers with the information they need when making the decision of granting the loan or not.
The diagram with the cash flow cycle needs to be proven through complex financial statements from the ongoing year or the previous one. The numbers are very important at this step, considering that they determine how much in need your company is of such a loan.
Encountering financing issues
In case your company encountered financial problems in the past, it’s best to list these and explain each situation so that you offer the bank credibility regarding your current situation as an entrepreneur. Financial issues are proof that your company will actively benefit from the business loan once obtained. During this stage, you should mention how the loan will be secured and paid back to the financial institution.