How to Prepare Your Organisation Before Applying for a Business Loan

You’ve probably heard it a thousand times – recessions are a great time to start a business. But like many cliches, there’s a degree of truth to it.

Good times disguise the performance of mediocre companies. So when their numbers start tanking, customers and clients start searching for answers.

Perhaps you have a better product or service than what’s out there right now. But you have a problem – financing. Without sufficient capital, you can’t scale to the size needed to serve the marketplace. And as someone who hasn’t applied before, you have no idea how to apply for a bank loan.

Normally, it isn’t that difficult to apply for small business loans. But times are no longer normal – whilst this recession offers big opportunities, banks and lenders are hesitating to fund them.

Of course, some entrepreneurs do manage to secure small business loans. But how? By putting together a business loan plan. This involves cultivating an excellent credit score, demonstrating healthy finances, and having a coherent business plan for financing.

In this blog, we’ll show you the most important aspect of how to apply for a bank loan – being financially viable.

How to Prepare Your Organisation Before Applying for a Business Loan

Preparing Your Company’s Finances for a Loan Application: A Primer

When you issue for small business loans application, the rules are the same for everyone. That is to say, you need to produce financial records that illustrate your cash flow, cash-on-hand, tax returns, and so forth.

But if these records fail to inspire confidence, good luck. Even if you know how to apply for a bank loan, you’ll experience great difficulty securing the small business loans you need.

Now, it’s true some firms might not require as much documentation as others. However, there’s a catch – if you secure funds from quick online business lenders, you’ll have to pay interest rates that are significantly higher than conventional firms.

So, if your company’s finances aren’t great, put down that application form. If you continue, you’ll only be wasting your time. Instead, you should focus on the first prong of your business loan plan: improving your firm’s financial markers.


Fine Tune Your Corporate Credit Score

In the current environment, financial institutions have tightened lending standards significantly. Consequently, prospects with less-than-perfect credit scores are experiencing increased difficulty in securing financing.

Take JPMorgan Chase as an example – in April 2020, they increased their minimum credit score to 700. And after that, many other lenders followed their lead.

So, if you want to remain in contention for small business loans, improve your company’s credit score. A few of the steps you can take are rather obvious – ensuring you pay bills on time, paying down debt, etc.

But there are a few hacks that can improve your score for relatively little effort. First, call up your creditors and negotiate an increase to your credit limit. And second, find other creditors and open accounts with them.

Both actions will increase the total credit available – this action will decrease your credit utilisation ratio, which improves your credit score.

Lastly, check your credit report with all reporting agencies. If there are any mistakes, dispute them. Succeed in removing these errors, and you could dramatically improve your credit score.


Boost Your Income

Often in financial media, there is an overemphasis on cutting expenses. And in many cases, it’s warranted, as many firms allocate their resources wastefully.

But whilst belt-tightening can free up some capital, you can’t hack and slash your way to prosperity. Only through acquiring new clients/customers can you meaningfully improve your company’s finances.

However, before searching for new prospects, focus on your existing clientele. Can you up-sell them? Has it been a while since you raised your rates? If so, then perhaps it’s time to bump them up.

Are there complementary products/services that you can offer? Offer a package deal at checkout, and you can drive up your average revenue per sale.

Now, these strategies are all tried-and-true tactics for increasing revenue. But if potential customers aren’t aware of your products/services, your efforts will be in vain. Because of this, you should also review your current marketing efforts and overhaul underperforming channels.

To be honest, product/service marketing is a subject that deserves its own post. But briefly, improve the quality of your copy, imagery, and the keywords you are targeting. Do this, and you’ll improve your visibility and the impact of your offer.


Cut Your Expenses

Now, we realise that we just bashed the overemphasis placed on cutting expenses. However, that doesn’t mean that fiscal restraint isn’t important. So, after raising your income, take a look at the liabilities side of your balance sheet.

Do your best to find quick, easy wins. This course of action involves spending less whilst getting the same service/product quality (or close to it). Changing your office supply vendor, renegotiating insurance premiums, or opting for no-name coffee over popular brands are all examples of this.

Next, do you have any red ink on your books? If so, declare war on it. By reducing or eliminating the balances you carry, you’ll reduce or eliminate your servicing costs. Make this a priority, as interest payments offer ZERO benefits to your business.

Lastly, you may be tempted to cut payroll through salary reductions or by eliminating positions. We advise against this unless certain staff members are adding little/no value to your organisation. Whilst cutting payroll or positions will produce immediate savings, a drop in capability, productivity, and morale will eventually wipe out that gain.


Create a Business Budget

Having a business budget is a key facet of a successful business loan plan. But to craft one, you’ll first need to know your company’s average monthly income. Then, figure out your firm’s average monthly expenditures. Do this, and you’ll know where you currently stand. Then, contrast that against your net profit goals, and you’ll know which direction you’ll need to go.

Next, apply the cost-cutting measures that we talked about in the last section. Then, after analysing your costs in each department, create budget figures for each. Department heads will be far less likely to accidentally overspend if they’re armed with these numbers.

Once you have built up discipline in your spending habits, you’ll have a solid business budget for financing.


Bulk Up Your Cash Reserves

In these times, cash equals power. Before the pandemic, the average High Street business had only 27 days cash-on-hand, per JPMorgan Chase. After countless businesses were caught unaware by lockdowns, many survivors have stockpiled cash.

Amid continuing uncertainty, you would be wise to do the same. Conventional wisdom states that a business should have three to six months set aside for emergencies. However, seeing how even moderately successful companies have been tested, we advise putting away even more.

By following the increase income/cut expenses recommendations mentioned prior, you can increase the monthly surplus capital generated by your business. But ensure this surplus is put into a premium savings account. This way, you’ll earn interest that’ll increase with each deposit.

As your account grow, it’ll make your business plan for financing a much more solid proposition.


The Business Plan for Financing: Your Road Map to Success

How to Write a Killer Business Plan

So, you’ve shored up your company’s finances. But, the job isn’t done yet. Now you need to show lenders where your organisation is headed. If you haven’t already done so, you need to pull together a business plan for financing.

A business plan is a document that defines a company’s objectives, and how it goes about achieving them. But how do you create a business loan plan? A successful business plan for financing features several crucial elements. These include market analysis, competitor analysis, how you differ from the competition, etc.

To complete the analyses mentioned above, you’ll need primary and secondary sources of information. The former consists of market research conducted by your firm. By running focus groups, surveys, and conducting interviews, you’ll gather plenty of relevant, compelling data.

Back up this information with strong supporting evidence from secondary sources. These include university studies, government statistics, and articles in trade publications. Ensure each source contains info that is relevant to your niche.

Finally, a solid business plan for financing should also include objective goals, along with timelines for their completion. They should also outline your marketing strategy – in addition to tactics, you should include a market profile and accompanying SWOT analysis.


Getting Financing is Tough… But NOT Impossible

Times are scary for everyone – even lenders. Because of this, financial institutions are hesitant to lend money, lest they accidentally create toxic assets.

As such, only creditworthy borrowers can reliably access capital right now. For everyone else, it’s a struggle. But if you must struggle, do so intelligently. Take steps to improve your firm’s financial health and eventually, you’ll secure the small business loans you need to grow and prosper.

Francis Nwokike

Francis Nwokike is the Founder and Chief Editor of The Total Entrepreneurs. A Social Entrepreneur and experienced Disaster Manager. He loves researching and discussing business trends and providing startups with valuable insights into running a profitable business. He created TTE to share ideas and tips to help entrepreneurs run and grow their businesses.

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