In business, it’s important to always have enough cash for anytime a good opportunity arises. Not having enough cash on hand might make you miss a shot. Unfortunately, not every entrepreneur has the luxury of having spending money all the time. The good news? There are lending companies that could help you.
Many starting entrepreneurs are afraid to avail business loans as they see this as a step towards failure. That’s only true if you aren’t smart with the choices you make.
So, how does one be smart when it comes to business loans? Take a look at these five things you should keep in mind when getting a loan.
1. Make sure you have the capacity to get a loan
When you’re applying for a job, companies take a look at your character references and health history to make sure you’re fit for the job. Lending companies do the same before lending money. This reassures them that you can return what you borrowed.
Financial companies always seek reassurance. Before finance companies offer you their help, they will need to check your:
- financial records
- your current assets and liabilities
- your personal credit history
These things help you and these companies see if you are qualified to get a loan. Companies also look at your sales record as proof that your business is stable enough to cover it.
2. The purpose of getting a loan
Know your why. There should be a sound reason why you want to get a loan. Lending companies are usually critical in this area, because they need to see if the purpose you cited reflects the current state of your business.
Citing the following purposes can help increase your chance of getting approved:
- Business expansion. Increasing the number of your stores or purchasing additional equipment to boost your production.
- Hiring more people. Getting more employees will require you to have a stable resource for salaries
- Inventory. Replenishing your products to keep up with the demands
- Working capital. Needing resources to manage your day-to-day operations
Preparing a business proposal can also increase your chances of being granted with a loan term.
3. Your assets than can be counted as collateral
When making a loan, you have to be prepared that some of your assets–your house, car, properties, business equipment, etc.–might be put on the line. These are called “loan collaterals,” properties that lending companies can seize if you are not able to pay your loan based on the terms agreed upon.
For loans less than Php 300,000, you don’t need to have collaterals. That said, you can still have a discussion with a lending officer on getting higher loan amounts for your business.
Presenting collateral could be a way to get you lower interest rates and higher chances of getting approved. Simply think of them as a way for financial companies to know that your loans are secured.
4. Your capital
The money you invested for your business says a lot about your capability to pay a loan you are applying for. Financial companies can verify this through your financial records, and if they see that your capital came from your personal accounts, then it is highly likely you’ll get a loan.
Some beginner entrepreneurs really cannot produce the capital on their own, but that doesn’t mean that lenders will close the door on them. You just have to present a well-designed business plan or feasibility study, as this will also assure the profitability of your business and convince financial institutions that you’ll be able to cover your obligations in due time.
Showing either of the two will reflect how committed you are in your business. Financial companies will note this as a good factor for you to get a loan.
5. Deserving character
Applying for a loan is like applying for a job.You have to prove you’re trustworthy and reliable enough. Creditors will have to look at your credit history to detect if you have done anything that counts as delinquent or if you haven’t fulfilled any agreements from previous creditors.
Sometimes, financial institutions also check your educational background, your previous employment, or business experiences and make a few calls to character references to see if you don’t have a history of getting away with loans and other financial obligations.
If there’s a case filed against you, it’s still up to the financial institutions if they will qualify you or not. Character is really important in any aspect of business. It’s also best to clear your records before you apply for a loan.
Being your own boss comes with a huge responsibility, and we understand that, sometimes, cash flow can be a little tight. We also know that, in order to grow, you need to increase inventory or beef up your capital. RFC supports the Filipino entrepreneur by offering flexible business loans.
Take a look at our products now and we will help your business dreams take flight!