One of the major challenges of small businesses is accessing bank loan. Although it is quite easy for large corporations, most small and medium scale businesses are not enjoying this facility because they lack the knowledge of the basic checklists to securing loans. This has led many to believe that financial houses only grant loans to the rich and large corporations. However, financial institutions, like every other business entity, are in business to make profit from every single transaction and will not disqualify any customer who can help them achieve their goal.
To understand how financial houses work; you must understand the definition of a bank. A bank is a business entity or financial establishment, authorized by the government of a particular country, to use money deposited by its customers for investment, pays it out when required, grant loans and exchange currency. So from the definition, banks make use of customers’ money (yours and mine) and will not restrict giving such money, as loans, to a particular set of people or organizations. What you need to know is the basic checklists that will qualify or disqualify you from accessing a loan.
The first step to getting loans from bank is to figure out what you need. Whether you will access the loan or not will be determine by the type of loan you want. So it is important that you choose the type of loan that best fit whatever you will do with the money. Some types of loans that you must know are auto loans, home loans, personal loans, business loans and education loans. When you know the type of loan that you want, then you will know the financial house that best fit your need.
Secondly, approach the appropriate bank. Approaching the appropriate bank is like window shopping. When window shopping, you are probably looking for the right product that you need. You have to do the same when it comes to securing loan. If you are looking for a home loan, it will be appropriate to look for a mortgage bank. If you are looking for loan to acquire industrial equipment, Bank of Industry is probably your best option. If you are a small business owner, consider approaching a microfinance bank. Although your chances of accessing the loan may be limited, it is still best to go to the appropriate bank that will meet your need. When window shopping for the appropriate bank, make sure you are comparing interest rates, costs, basic requirements and other terms and conditions attached to the repayment plan. It is important you pay very close attention to the aforementioned details so you won’t find yourself in a hole that it will become difficult or impossible for you to get out. If you are confused about anything, ask questions until you get satisfactory answers. I know of those who took auto loans, did not look at the cost implication and were trapped in the repayment plan until the cars were taking away from them.
Thirdly, you will need a credit history. Credit history simply means you have history of borrowing and repaying loan. The big question should be; how do I build a credit history when I have never taking a loan before? The right answer to that question is; start from somewhere. Start by borrowing less and paying back adhering to the repayment plan. You can start by getting a loan (overdraft) to buy a photocopier for your business. You can take it a step further by getting a loan to pay for a bigger office space. Whatever you do with the money, make sure you stick to the repayment plan. Once you develop a strong credit history, financial institutions will trust you to lend you more money with competitive interest rate.
Fourthly, make sure you have a security that guarantees the lender that you will pay back. I am not talking about collaterals, but cash flow. No bank will give you a loan without making sure you have a steady cash flow. For a stable salary earner, it might be easier to access loan. But for a small business owner, you will need to make sure that your business shows an evidence of cash flow. This simply means genuine evidence showing money goes out and come into your business leaving behind profit after overhead. Once you can repeated prove this for a period of six months or more, accessing loans will become easier than you think.
Finally, if eventually you apply for the loan and you do not get it, make sure they tell you why your application was not approved. In most cases, they don’t believe you have credit history, cash flow or the required documents. Now credit history and cash flow, you probably understand. Not having the required documents most times will turn down small business owners’ application for loan. A senior executive manager once confided in me that a business name registration (one man business) do not have the capacity to access loan except from a microfinance banks and most small business owners look away from microfinance banks. That is why it is important to approach the appropriate financial institution that best fit your financial need.