There are many different strategies business owners and managers can take to ensure their companies have adequate cash flow to tide them over until more prosperous times. For instance, it makes sense to better manage and cut back inventory, renegotiate supplier terms, cut fixed costs on various business expenses, invoice customers ASAP, and follow up on late bill payments. However, sometimes, you have a cash flow shortfall no matter what you do.
Often, this stems from having busy periods of the year where you have to stock up on supplies, etc., for the holidays or a big sale but won’t receive income from orders until later. When you know your firm is likely going to end up in this situation at some point, it pays to do what you can to obtain a business loan with decent rates and other terms and conditions to see you through. Follow a few tips to help you improve your chances of getting approved for a loan ASAP and boost your company’s liquidity management prospects in turn.
Look Into Multiple Lender Options
Don’t feel like you need to approach only the bank or other financial institution close to your office or where you currently have accounts. These days, there is a wide range of institutions to choose from for loans, including many online offerings, so there’s no need to limit yourself too much.
Instead, do your research and learn about the various terms and conditions and rates that different places boast, and see what might be the best fit for your specific business needs. Try to find products that will enable you to save money because you pay a lower interest rate or have more affordable application costs.
Develop Or Update a Comprehensive Business Plan
To get a loan approved, most banks and other lenders will want to know how you plan to spend the money you borrow and how this injection of cash flow will positively impact the company. Before you apply for a loan, it’s wise to put together or update a comprehensive business plan that shows that you know exactly where you’re trying to go, what challenges you could face along the way, and what you need to achieve your goals.
When you make it clear how the way you plan to use loan funds will help your venture thrive and bring in more positive cashflow (even if it does take a little while), this will make financial institutions see you and your organization as a better risk. Provide financial forecasts and other numbers to show how you see the cash injection impacting the bottom line so lenders can feel confident that you can keep paying the mortgage amount or at least interest accumulated every month and won’t default on the loan.
Compile all the Necessary Paperwork for the Loan Application
Regardless of which lender(s) you approach for a loan, the likelihood is that you will be asked to provide quite a bit of paperwork to show why you’re a good bet for the lenders. To make your loan applications go smoothly, it’s wise to spend time getting your paperwork prepared in advance.
For example, you’ll undoubtedly have to provide details such as a cash flow position, profit or loss statement, balance sheet, and forecasts for the future. You’ll need to provide tax returns for the last few years that the venture has traded, too. You may even need to show some paperwork related to your own financial position, such as tax returns and a list of assets and liabilities.
Don’t Get Greedy and Ask for More Money Than Necessary
Another tip for getting a business loan approved is to only apply for the amount you need to expand your business or get through a tighter period, replace equipment, etc. Lenders will be more likely to say yes to your request if they can see that the figure you’re asking for is reasonable, based on your business needs instead of unrealistic expectations, and has been thought out rather than just guessed at.
To improve your feasibility for lender funds, it helps to keep a close eye on the credit profile for yourself as the business owner and the new venture. The credit rating is something banks and other lenders pay a lot of credence to, so if this number is too extreme, you can shoot yourself in the foot. Financial institutions look at credit report details to get an idea of who may have a history of reneging on loan payments or getting into debt and taking a long time to get out of it.
Follow the above tips, and you should find that you start getting a lot more yeses to your loan applications and more favorable terms for a loan. It takes time to set yourself up for success, but your venture is likely to be unstoppable once you do.