Getting SME financing is a hurdle many small businesses face. Banks are strict with lending money to businesses more so than lending money to individuals. However, the fact remains that businesses in general sometimes need financial aid to keep it afloat and stabilise cash flow. While getting your business financing approved can be difficult, knowing what to expect can help your chances exponentially.
Here are some tips that you could practice ensuring that you have the highest chances of being approved for your business financing.
Credit Check Yourself and Your Business
How long have you been in business?
To qualify for a business financing with banks your business must be operational for at least 2 to 3 years to date. Financing companies, lenders and digital financing platforms have similar requirements where you need to be in business for at least 1 year.
Your financing application will often ask for the latest 6 months bank statement, so try to ensure that your business is stable enough, that your monthly bank statement shows consistency, which increases your rate of approval.
What is your credit score?
Your overall credit score plays an important role to help determine which type financing you qualify for. This could mean that the bank or financier could recommend a financing structure that is better suited to you.
If you don’t already know your credit score, you can create an account with a credit reporting agency such as CTOS to pull the score for a small fee. Your credit card company will also have access to this information.
Will you be able to make payments?
Based on your credit history and both personal and business commitments. Calculate how much you need to spend a month versus how much your business brings in. Make sure you have no outstanding payments due on your other loans or credit cards.
Having a history of defaulting or making late payments on your other credit lines can affect your chances of being approved for yet another form of financing.
Why do you need financing?
You need to be both sure and honest about why you need the financing. It is a question that banks and lenders ask when you apply for financing. The most common reasons for getting a business financing is to manage your cash flow, your day-to-day expenses or to grow and expand your business.
Whatever the reason may be, as the business owner you need to be sure and have a good reason to back up your need for financing.
Understand Financing Mechanics
Here is a fun fact about banks, they usually only offer you a loan or financing of not more than 30% of your current financial commitments. Remember to calculate your financial commitments before you make an application. Try to roughly calculate the amount of money you are willing to use as financing repayment over and above your financial commitments, this is to ensure that you are not left penniless after paying the premiums.
Take into consideration the interest rates that are imposed as well as the financing tenure, target a structure where you can sustain the payments in the length of time required. Your approval rate greatly relies on you being both capable of making payments and making payments on time.
We hope that these tips will be helpful if and when you decide to get some business financing to boost your SME.
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