Don’t Get Disqualified: Three Hurdles in Applying For a Business Loan
Increase your chances of business loan success.
Applying for a business loan can be nerve-wracking and time consuming. Most business owners want to go into the process with some confidence that the loan is likely to be approved!
To give you some assurance as you seek a loan to fund your growth, we have prepared this list of hurdles to anticipate. These are some of the reasons your loan could be instantly declined, so get familiar with them and head off issues before they arise.
One: You are not managing your monthly creditor obligations well (bad cash flow).
Bad cash flow means that your credits and debits are out of sync, and you are struggling to cover your creditor obligations in a timely manner. It can look like late payment of bills, dishonouring transactions in your bank statements, and unarranged overdrafts to see you through the month.
Here are some ways you can overcome this before applying for a business loan:
Prepare a monthly budget outlining due dates of creditor invoices and payments. Make sure money is in place to pay your direct debit payments on time.
Forecast your cash flow with your accountant to predict when there will be a shortfall, so you don’t take too much out of the business too soon.
Negotiate better payment terms with both your creditors and debtors so your cash flow cycles are in sync.
Make sure there is sufficient working capital in the transaction accounts to allow for seasonal fluctuations in your business.
Two: You don’t have a clear purpose for the loan funds.
Gone are the days where you can just go to the bank and ask, ‘how much can I have?’ Responsible lending protocols mean that you need to have a good explanation for the purpose of the loan.
Here’s how you can prepare for this requirement:
Create a forecast to show the projected outcome of the introduced working capital, such as the increased turnover brought about by the new equipment or staff member.
Show invoices, quotes, or website links for the equipment you want to buy.
Provide settlement statements for any loans you want to refinance.
Three: There are a large number of credit enquiries in a short space of time.
It makes sense that when you are applying for credit without a broker you may shop around a bit. However, if there are a large number of enquiries in a short space of time, lenders start to have questions. They, understandably, might begin to ask what is going on and why you have not yet secured a loan.
In addition to that, multiple enquiries can take points off your credit score. So be mindful about the number you are making. Better yet, work with a broker like Spinach to save time and hassle. They are business loan brokers who work with 26 financiers to find the best loan solutions for any specific business and situation. To have a confidential chat about your preparedness, or about the goal you are trying to fund, get in touch with Jemma on 021358433, email jemma@spinach.co.nz or visit their website: www.spinach.co.nz.
Need help with bookkeeping to stay on top of your financial systems and have everything ship shape before you apply? Released can help! Book a quick chat with Kellie and get the ball rolling.
