Is your business growing at a rate where your current team simply cannot cope with the increased workload? Are you looking to hire new staff and acquire new equipment to keep up with your business’s rising needs? Ultimately, all of this is going to require funding, and one of the best options for getting this (without losing equity in your business) is to apply for a business loan from a reputable bank. If, however, you are unsure how to go about it and worry that your application might get rejected, here are some tips on how to go about ensuring your loan application is successful.
When we talk about business financing, it can be a challenge particularly if you are a startup or a newer business because banks tend to be cautious, and analytics show that people who are newer to business have the greatest rate of default. Simply put, the newer you are in business, the more difficult it will be to get financing.
There are three factors that banks look for before making a loan offer to you or any business. These are called the three C's of lending or borrowing. You must be prepared to demonstrate all three when you approach a bank for a loan.
Collateral
First, banks will look for Collateral. Collateral is an asset that a lender accepts as security for a loan. If the borrower defaults on the loan payments, the lender can seize the collateral and sell it to recoup the losses. Collateral is something that the bank can sell for cash fairly quickly to repay itself in case you fail to repay the loan. Hence, ask yourself, what assets are you going to put up to cover the loan? Some people don’t have enough collateral to take out the right amount of loan they need or are simply unwilling to risk putting up collateral in fear of losing it when they fail to pay back a large loan. This is one of the major factors why many don’t get their loan applications approved.
Credit Rating
The second thing that banks look for is your current Credit Rating. In a nutshell, what they're looking for is that you have access to enough money to pay the bills even if there are fluctuations to your business. This is why they may want to see 3 to 6 months’ of bank statements to make sure you've got enough income to get through the highs and lows. Borrowers need to show a solid cash flow sufficient to repay the loan. This is why most banks want you to be in business for a year or more. They are looking for businesses with a much more solid footing that can produce more revenue than expenses in the long run.
Make sure to ask yourself, “What is my financial track record with regard to loans? What kind of character do I have in terms of honesty and dependability? Who knows me and will vouch for me?” It is vital that you keep your credit standing impeccable. One bad credit experience can put a black mark on your Credit Rating and undermine the quality of your character in the eyes of the banker.
Hence, give some thought to how much money you have borrowed and repaid in the past and how good your credit history is today.
Capital
The third C that banks want to know is the amount of Capital you have, which means how much of your own money you are willing to invest. This is often called hurting money. How much of your own hurting money are you willing to put into the deal? Those who say, “Never invest your own money in your new business and always insist that the bank provides you with the money,” might not be entirely well-informed. Banks will want to know that you have put your whole heart and every piece of investible income into the business before they will lend you their money. This is their way of measuring the level of dedication you have towards making your business successful and the level of confidence they are willing to place in you. In the final analysis, the individual banker must have confidence that you are the kind of person who's going to succeed in the business before lending you money as you start to build.
Borrowing money from banks is a progressive series of financial transactions that develops over time. When you first attempt to borrow money, most banks will want five dollars’ worth of collateral, personal investments and other assets for every dollar they will lend you. They will also want personal guarantees from either you, your spouse or your children, if your business should unfortunately go bankrupt. However, don’t fret, because after a bank has several years of experience with you and has gotten to know you better, its lending requirements will decline bit by bit.
Conclusion
Borrowing a loan may seem daunting at first, but with the knowledge you have now, backed with the right credentials, you can put your worries to rest. The above gives you insight into the aspects and issues that you should consider and be prepared to show when it comes to determining and applying for a loan that could change your life and advance your business.
If you are looking for a bank loan for business in Malaysia, try applying for OCBC Business Term Loan, with no collateral required and a financing amount from RM50,000 up to RM600,000 and a tenure of financing of up to five years to repay the loan with attractive interest rates between 5.50% p.a. (Effective Interest Rate 10.01%) and 10.00% p.a. (Effective Interest Rate 17.27%). Enquire now at https://www.ocbc.com.my/BusinessTermLoan
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