Businesses don’t always have the funds they need to cover their costs. Sometimes, they have to seek financing from some other source.
Banks are among the first options entrepreneurs think about when the question of external funding comes up. They’re an obvious candidate in this respect; lending to businesses is one of the things they exist to do.
Read more about Business Growth Tips
However, many people would rather seek financial support from less formal sources, such as family and friends, or personal savings. That’s because of a widespread belief that the conditions for receiving a bank loan are often too stringent. There’s also the problem of these loans being rather costly.
Perhaps you’re aware of these misgivings, and you’re still convinced that a loan from a bank will be a net good for your business. But you’re wondering how you’ll get the financial institutions to accept your loan request. Here’s how to go about it.
Have a Business Plan Ready
Banks are wary of lending to businesses that aren’t viable. They want their money in the hands of competent ventures that have demonstrated a capacity for sustainable growth.
They want to be sure that your enterprise’s business model is solid and built to work.
A business plan gives them some of the clues to this. It describes why your business exists, what problems it exists to solve, how it’ll go about tackling those problems, the market it’s targeting, and how much it’ll make from its operations.
To the trained examiner, your business plan may indicate the likelihood that your business will succeed or fail. And this is crucial to the lenders’ final decision on your loan request.
Know What Type of Loan You Need
The type of loan you’ll go for depends on the need you’d like to meet with it. The financing you’ll get for the execution of contracts may differ from what you’ll receive if you’re seeking funding for equipment purchases. Each of these comes with unique terms and conditions, so you’ll do well to find out what they are beforehand.
By specifying the purpose for which you’re applying for the loan, you enable the bank to decide whether the amount you’re applying for will cover your stated need.
Be Clear About How Much You Need
Assess your needs to find out how much it’ll cost to meet them. Be sure to use prevailing market prices. Avoid underestimating or overestimating these costs, as both approaches could lead to problems in the future, and could lower your chances of securing the loan.
Find our comprehensive listings of businesses in Nigeria here
Prepare a budget and utilize financial projections that mirror the current market reality.
Know What the Banks Will Expect from You
Banks will have other requirements besides a proper business plan. They will want to examine your financial reports, to determine how well your business is doing. For instance, they could screen your cash flow statement to see if your business has any prolonged funding issues. Data on revenue and profit levels over time will reveal whether the business has what it takes to repay the loan.
Other things they may consider include the age of your business, the industry you’re in (banks favour certain industries over others), your credit history (including how punctual you’ve been with repaying previous loans), and whether you are a (long-standing) customer of theirs.
Your ability to provide the required collateral for the loan is also a crucial factor.
Put Your Documentation Together
The assemblage of documents required by banks may vary, depending on the lender and the specific type of loan you’re requesting for.
These items are usually requested by banks:
- Copy of registration certificate from the Corporate Affairs Commission
- Bank Statements from a specific period, usually between six months and a year
- Business plan
- Title document
- Credit history, involving old receipts
- Any other document required by the lending institution.
Submit Your Application
Ensure that you submit your loan application early. It’s a sign that you are engaged with the process and keen on getting your request approved. It’ll also allow the banks more time to process your application and may give you more leeway to deploy the loan if it’s approved.
Featured Image Source: Nairametrics
Got a suggestion? Contact us: email@example.com