How to Secure Bank Loans as an SME

How to Secure Bank Loans as an SME

February 1, 2021 1

Almost every small and medium enterprise can relate to the problem of capital inadequacy. With so many brilliant and marketable ideas, just one thing seems always to be missing – money. In the world of business and financial empowerment, it takes more than ambition and willpower to breakthrough.

Essentially, entrepreneurs need to have sufficient cash to start up their brands or business ideas. While there are diverse ways to raise funds, bank loans are a great way to obtain the required cash, However, when it comes to obtaining loans, only a tiny percentage of SMEs access these loans at the end of the day and there are so many reasons why.

How to Secure Bank Loans as an SME
Two entrepreneurs discussing how to secure bank loans

Top on the list of reasons is that small businesses tend to have some lapses when trying to raise funds. Securing a bank loan goes beyond waltzing into any bank and requesting for some money to fund your business idea. Knowing that banks too are looking out for their own interests, only the prepared will be successful.

Banks make it their responsibility to ask interested entrepreneurs so many questions, and a business owner’s ability to show preparedness proves to them that one is truly deserving of a loan. Here are some simple tips to help SMEs secure bank loans.

Have a Business Plan

Your business plan provides detailed information to the bank about who you are and what your business is all about. By having a business plan, you not only prove to the bank that you’re competent and ready, but you provide a framework to guide yourself and your team members.

You can come to terms with the realities of all you will need to do to achieve your mission and vision. To boost your chances of securing a bank loan, ensure that your business plan is carefully prepared, highlighting your objectives, market opportunities, long-term business goals, and realistic ways of achieving them. All these contribute to a successful business plan, and eventually, a successful loan application. 

Have a clear financial model

While a business plan shows you the process required to make your small idea into a huge success in the text, a financial model shows what that plan can achieve and possible limitations in financial terms. Even when a financial model is not a prerequisite to obtaining a bank loan, lenders will be more inclined to give funding to a business that has a clear approach on how it intends to spend the money, accounts for how it will pay back both the principal rate and the interests, and much more.

This also helps you as a business owner see exactly what is required of you to ensure a win for both the lenders and your business as a whole. From your projections, the bank will also be able to determine whether or not you will truly be able to pay back the loan at the due date or not. 

Know How Much You Need

Asides not having a business plan, another easy way to lose the bank loan is by not knowing how much your business needs. Overestimating and underestimating are just as dangerous. You do not want to showcase your unpreparedness to the bank you’re applying to. This is why preparing your business plan comes first, because it makes you see your obstacles even more clearly and shows you what lies up ahead. With your business plan and financial model, you will be able to speculate how much your business will require adequately. 

Have existing Financial Records

How much did you start the business with? How much money have you made or spent up until this point? These are just some of the answers the bank will need to know to make their decision as to whether your business is worth it or not. By presenting your cash inflow and outflow records, you also give credence to your business’s legitimacy. Your financial record conveys to the bank that your company has a market and possesses the required potential to pay back the loan successfully. 

Have a Clean Credit Record

Before applying for a loan, you need to ensure that your credit record isn’t looking suspicious or dubious. In other words, before you can get a loan from the bank, they have to be sure that you have a habit of repaying your debts. If, however, you had multiple pending credits you were yet to attend to at the date of your loan application, there is a high chance that the bank you’re applying to will not trust you enough to grant you the loan. 

Present the Right Documents

At your loan application, you will be required to present other documents asides your business plan. These documents include things like your tax returns, applicable business licenses, letters of incorporation, proof of personal and business insurance, bank statements, etc. These documents will go a long way in validating your authenticity and increasing your chances of getting the loan. 

For most SMEs, it is almost impossible to secure bank loans. However, the process can be as seamless as possible with the right information. 

Lawretta Egba
Lawretta Egba
Lawretta Egba
One thought on “How to Secure Bank Loans as an SME
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    Idris shuaibu

    Thanks you sir

    February 9, 2021 Reply
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