Applying for monetary help for your business is something that requires careful evaluation and planning. Many small and medium enterprises (SME) rush into the opportunity of gaining more cash but forget the steps that result in a successful outcome of your application. Therefore, we look at the five main points that will contribute massively to insuring you get the best possible commercial finance deal.
Build relationships
This may not seem important initially but if you want to apply for commercial finance, it’s vital to build relationships with those who can help you achieve your aims. It can be someone who is willing to invest in your project, a bank or an organisation who are willing to support your business. Tell them about your company and how it works. Lenders usually go for someone they know and trust so it can count as a big positive if they already have an idea about you and your company. It is sometimes the case that a lender is willing to give money but on extremely complicated terms. In this scenario, it helps that you have some kind of understanding with them.
Be clear on the reason and requirement
There are many different reasons to want to borrow money, and it’s essential that you know your reason and can explain it with accuracy. Some of the positive factors that might necessitate a cash injection include IT upgrades, software development, employee training, buying property or replacing old equipment. Negative factors include filling up financial holes, acquiring useless facilities and covering an ongoing loss. Once you have an idea of why you need the money, then the next step is to decide how much money is required. Although most small businesses do not require large sums, if you haven’t sorted out the exact requirement and don’t have a carefully researched plan, it can become problematic in the long run as you may run short of capital quickly or have acquired more loan than you needed which results in unnecessary debt repayments.
Research to find the right lender
There are many different kinds of commercial finance providers available, so it comes down to personal choice. You have to decide the best fit for your company, based on your requirements. Commercial banks are usually the most prominent source of finance for small businesses, but you must follow a strict schedule of payments and conditions. Non-bank lenders are increasing in numbers and want to invest in projects they consider to be profit making. Similarly, local banks who wish to develop in a specific sector or region are always willing to lend money to people they think will improve the economic situation within an area. Lastly, microfinance banking is a suitable option for companies that have less than ten people working or have a smallish budget.
Know all your scores
Lenders always look at your personal credit scores before releasing funds as it assures them of your reliability. Make sure you have all your documents prepared and know which factors are considered more important than others. Credit scores of more than 800 are required in most cases to get a loan. 33% is the maximum personal debt to payment limit. The age of your company is also essential. Usually, fund providers require financial records for a minimum of two years with good payment history in order to lend. Lenders also survey the cash flow and income of your business. The higher it is, the better the chances of being accepted. Some loan providers also complete an industry risk assessment because it’s easier for some sectors to get money than others. Having collateral also increases the chances of getting the best deal.
But most importantly,
Prepare a complete application package
Once you have all the documents with you, the final step is to prepare your loan application package. It significantly improves your chances of getting a better and quicker loan deal if you have everything completed accurately. The most important element of these documents is the business plan; you should have a detailed and updated program based on why you started your venture and what you want to achieve. It can also include your detailed resume, but that’s not a requirement because now it can easily be accessed on your social networking profiles including LinkedIn. Your company’s books, and all other financial records related to your company and personal statements such as tax returns must also be included. Once you have everything ready, then you just go ahead and place your application, confident that you are in the best position possible to secure a great commercial finance deal.
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