Growing a small business presents many hurdles, not least of which is the challenge of funding your company. Banks offer great financing options for small businesses, with a variety of loans and the best interest rates. Here, we discuss how to apply for a business loan and what to do if your loan application is denied.
Table of Contents
- How to Prepare for Your Loan Application
- What to Do if Your Loan Application Gets Rejected
How to Prepare for Your Loan Application
Preparation is an important step for successfully applying for a business loan. Startups applying for loans must be ready to display their business plan and relevant experience. Additionally, startup directors must be strategic in presenting their personal finances and in selecting the bank and loan that best fits their needs.
Develop a Detailed Business Plan
A thorough business plan is essential for applying for a business loan. A competitive business plan provides an executive summary, detailing the overview of the business, its strategy, and management team. It also includes a description of the products or services that your business sells and how your business plans to market and sell these products or services. Further, it is important to explain how your business will use the loan. This helps the bank understand the likelihood that you will repay your loan.
A strong business plan will also include comprehensive market and competitor analysis, and how this analysis informs the company's business strategy. Finally, it is crucial to provide detailed financial reports and forecasts. These help lenders envision your business's future.
Illustrate Relevant Industry Experience
To indicate that you have applicable skills to grow your business, it is important to detail your relevant professional experience in your loan application as it relates to growing your new business. To accomplish this, it may be helpful to provide resumes for your business's management team. It is essential to provide relevant work experience that demonstrates your team's technical skills and management experience.
Manage Personal Finances
If this is your first time business loan, banks will be interested in your personal financial and credit history. It may be helpful to check your credit report and fix any issues before applying for a business loan. Lenders will be interested in borrowers with strong credit scores, a mixture of credit and loan accounts (e.g. credit cards, mortgages, etc.) and several years of credit history.
Choose a Bank
First, create a list of banks that offer the types of loans that could help your business. Next, review each loan's eligibility requirements. These baseline requirements, such as minimum revenue or operational history, will help you weed out loans for which you do not qualify. Finally, consider applying for loans from banks that you've worked with previously. For example, if you have a mortgage, a checking account or a savings account with a bank, it may be more likely to offer your startup a business loan, given your relationship with the institution and its understanding of your trustworthiness.
What to Do if Your Loan Application Gets Rejected
It is very common to be rejected for traditional bank loans. In fact, research indicates that 4 of 5 Singaporean businesses are not eligible for bank loans. To get a better sense of your business' shortcomings, make sure to inquire about why you were rejected.
In some cases, some shortcomings like a sparse business plan or lack of collateral are easily remedied. Making changes to these types of issues will help you improve your future applications. If you cannot easily solve the problems associated with your application, it may be prudent to apply to other banks and consider alternative financing options.
Alternative Financing Options
There are several alternatives to bank loans. The best choice for your SME will depend on the characteristics of your business, its financing needs and your personal preferences. The table below outlines a few options for startup funding including crowdfunding loans, equity crowdfunding, credit cards, personal savings, personal loans and loans from family and friends.
|Alternative Financing Option||Pros||Cons|
|Personal or business credit card|
|Loan from family and friends|