Getting A Business Loan
Business loans can be obtained from legally established financial institutions such as banks and finance companies. Business loans are given by these institutions when there is a need for funds to expand an on-going business and manage a short-term cash deficit or to start a new business.
Lenders grant loans at a certain interest rate. The decision to lend money is subjected to our ability to repay the loan promptly. The loan applications will be assessed and decisions are made on a case-by-case basis.
Basically, we are required to submit the following information to process our loan applications:
- Company profile. We need to furnish the company background including year of incorporation, type of business (sole proprietorship/ partnership/ private limited), nature of business, clientele, products and participation in government/ public tenders, representation of foreign companies, if any, and goal(s) of the company.
- Financial Reports. If it is an on-going business, we are required to submit audited financial reports. Generally, we are expected to present Trading, Profit/ Loss Accounts and Balance Sheets of the last three consecutive years.
- Cash Flow Projections. To start a new business or to expand an on-going business, we need cash to cover the initial deficits until there is sufficient regular cash in-flow. For this, additional cash is needed by way of loan. The officer-in-charge might request for cash flow projections along with the company profile and financial reports.
The cash flow projection reflects additional cash that is required to cover-up the initial deficits. It shows the lender, the future prospects and growth of the business and whether the borrower has surplus income to repay the loan. It is projected over a certain period of time which may vary from three to five years or on a monthly or quarterly basis.
The cash flow projection can be prepared using a spreadsheet. It consists of two parts: Cash inflow and Cash outflow. The cash inflow shows the expected receipts and cash outflow shows the estimated payments. The payments are itemized as trade purchases, selling and distribution costs, financial costs and general overheads.
- Collateral. The lender may also request for fixed assets of the company or personal assets of the directors or partners which may be given as buildings, lands or fixed deposit receipts. Fixed assets are pledged as collateral with the lenders or financial institutions to secure the loans in the event the borrower is unable to repay the loan or defaults in settling the loan.
If the loan application is approved, the borrower should read and understand the terms and conditions stipulated in the agreement before attesting his/ her signature.
Besides, the borrower has to provide interim financial reports to show the progress of his/ her business.
A word of caution: It may be easy to get loans from loan sharks but they charge incredibly high interest rates and the borrowers suffer emotional and financial strain. This has been highlighted time and again in the media.
Should your loan be approved :
Read and understand all documents before signing on the dotted line.
Tip: Maintain close contact with your loan officer and give him/ her progress reports on the financial standing of your business. If you keep an open communication, the lender will more likely be more lenient should you run into difficulties to settle the loan.
If your loan is not approved :
Find out why it was rejected so that you will have a better chance of presenting your next proposal.