Jun 24

5 financial management tips that might help you secure a small business loan

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Getting a small business loan currently is not an easy task considering the strict loan awarding procedures being affected by many lending institutions. As a result, new startups have been forced to adapt to these changes with one approach being affecting proper management to their businesses.  This management is mostly focused on formulating effective financial policies which ultimately will positively influence the lender to extend a loan at the time of the need. In this regard, a small entity with a plan of seeking lending in the future must prepare themselves to prove their competency in financial planning and control. With this in mind, the following are the top 5 financial management tips that might help your small business to secure a loan;


1. Have An Organized Bookkeeping System

It is a basic but most important business practice any business owner should maintain.  Lenders will base their decision depending on your numbers.  Therefore, having unclear and vague numbers will work against you, so make sure to have well-kept records for reference. These records will not only prove your business competency but also assist in answering the lenders’ questions. In this relation, having a  clear mind on your business records and cash flowwill make you look like a smart financial manager in the eyes of the creditors.


2. Have a Realistic and Comprehensive Business Budget

A financial budget is one of the key pieces of financial management that the lending institutions will critically analyze. This will make them have a clear picture of what the business is attempting to achieve. Having inflated and deflated budgets will raise questions on the business viability while incomplete budgets will be overlooked over comprehensive and detailed financial plans. Therefore, a small business should take time to create a clear and comprehensive financial budget, showing realistic projected incomes. It should also show how the added debt will be used in the budget and its benefit to the whole business scope. This will improve the lender’s confidence in your business loan repayment abilities.


3. Have Recurrent Risk Management Analysis of Your Business

Banks have realized the high risks involved in lending money to small businesses. Therefore, by having a clear mind on the risks that business possess to the bank, one will be able to make well-thought demands to the creditors. This will not only increase your loan award chances but will also help you negotiate for better terms. For this reason, hire an affordable financial analyst to analyze your collateral value, profitability, and credit ability. This will arm you with the right information for loan negotiation with the credit departments and increase your chances of getting a good deal.


4. Prove a Sustained Credit Payment History

Banks have a strict policy of checking a business credit history before handing out a loan. A business that aims to acquire a loan from these institutions should create a positive debt repayment history. The history does not have to be from lending institutions but can also come from business partners. As a result, the business balance sheet should prove that the business has a loan and debtors repayment habit. The same balance sheet should prove that the business has a manageable debt load in their books. This shows that the business is taking the loan to expand its operations rather than repaying its previous debt. A small business entrepreneur might also seek reference from previous trade partners who will prove the creditworthiness of your business. In summary, small business owners should aim at creating positive credit records with all lenders. This habit helps in two ways; proving the viability of the business and confidence building among the lenders.


5 Separate Businesses from Personal Finances

When seeking loans, one must demonstrate the clear difference between personal and business fiancés. Most small businesses have failed or collapsed in the name of business-personal interaction. Due to this, banks will deny you a small business loan if they trace collaboration between personal and business transactions. As a result, the first step should be to ensure that there is no link between personal and business bank accounts.  There should be no transaction from business to personal bank accounts and vice versa. One should also possess two different credit cards, one for personal and another for business activities. To avoid errors and confusions, smart business owners will pay themselves in the form of salary just like any other worker in their business. This financial discipline and separation will make the lenders confident in your management skills.


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