(Updated for 2020)
A bank’s perspective on business loan eligibility is not tough to understand. As a business owner, you would probably have firm convictions about the values of profitability, reliability and efficiency for each and every transaction, and this is no different for any bank.
Assuming that you read 5 Reasons Why You Can’t Get That Business Loan, here are 4 more ways to improve your chances of getting a business loan.
Company profitability is a strong indicator regarding the entity’s loan repayment ability. Some financiers are famously sticky regarding this criterion.
An increasing number of banks and financial institutions are adopting computerized and automated credit assessments and one of the many “immediate failures” is a loss-making company.
The age-old excuse of “Oh, I didn’t declare profit because I didn’t want to pay taxes, but actually I’m profitable”, will not work! (P.S. it is also a very serious crime to evade taxes.)
Which brings us to our next point..
It is not recommended to apply for a business loan if your business is still unstable with high volatility in financial results (massive loss, then massive profit) as most credit assessments take the average financial figures from the past 2 years.
Planning ahead will allow you to navigate through the challenge of “lenders are only interested to lend when I have no need for a loan” as this is the time when your financials are the strongest. Secure the funding now, even if you only need the funds next year.
Seasonal transaction patterns are common with small and medium-sized businesses, with owners experiencing some good months and other less profitable months. Since most banks require the latest 6 months’ bank statements, which are used to assign a credit rating, providing such documents after a period of strong sales would help your case.
(Definitely do not try to “cook your books” as all banks have extensive fraud prevention measures in place precisely to guard against this).
Business loan products are notoriously difficult to understand as every bank brands their product differently, often with very catchy names, even though the basic function is the same.
It is important to fully understand how each product works, the pros and cons and if it is suitable for your specific business needs.
A good framework to consider a loan product, is to think about the loan’s purpose, conditions and collaterals.
The loan’s purpose shapes the broad category of loan you should get, while the loan’s conditions such as duration, repayment pattern shape the specific loan you can get, and lastly, the collateral, which refers to external assets used to secure the loan, would determine the cost of this loan facility.
Since a company is governed by its directors, a good proxy for a company’s repayment behaviour is often its directors’ personal credit record.
Company directors’ bad credit behaviour such as late or partial payment on personal credit card bills, will negatively impact the credit assessment of the company.
Similarly, directors that declare low annual income figures (found in IRAS’ Notice of Assessment) will also impact the credit assessment of their companies. This is due to the requirement of Personal Guarantees from the directors for most business loans.
In the event of a loan default by the company, financial institutions may demand payment from the loan guarantors. If the directors do not have enough income in the first place, they are unlikely to be able to repay the loan for their company.
Changing Small Business Financing in Singapore: The Lendingpot Way
5 Reasons Why You Can’t Get That Business Loan in Singapore
Stop Waiting For The Business Loan Decision From The Bank. Here’s How.
Lendingpot.sg operates a Business Loan Marketplace that allows an SME to connect to multiple lenders with just one application, allowing the SME to know who its prospective lenders are and the rates that they offer, in a very short time.
Eric Koh is passionate about helping SMEs grow and has spent years interacting with business owners at OCBC and IFS Capital. He is interested in 70s rock ‘n roll, the odd novel and copious amounts of historical trivia.
