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How to apply for an SME bank loan

Updated on October 4, 2011

How apply to apply for a business loan

Many SME (Small and medium scale enterprises) startup businessmen and entrepreneurs wonder why their application for bank loans is often turned down without realizing that banks assess one’s claim to loan request using standard procedures and requirements.

If you have a brilliant business idea you know will work and can successfully prove it to financiers, you are half way down the road of receiving your loan however there is still some ground to be covered especially with processing your application and convincing the loan officer at the bank that you are both credible and loan worthy. Here are a few tips on how to secure a bank loan and things you should note before filing an application.

When is the best time to apply for a loan?

Before approaching a bank for a loan, ensure that you have met all or most of the stated conditions below;

  • You have been able to identify a business opportunity especially one that is largely untapped
  • You have thoroughly investigated the opportunity and have found it viable and profitable. Having professional experience in related field or business will be an added advantage in your loan application
  • You have a good business plan
  • You have an exit strategy in the event of failure
  • You have a very good loan repayment plan
  • You have adequately made personal commitments to contribute to the success of such an opportunity
  • You have been able to establish a productive relationship with your prospective lender (in this case the bank and quite possibly you are already a customer)
  • You have established either creditworthiness or considered a not too risky borrower by your prospective lender (ability and willingness to repay the loan make you credit worthy and this can be deciphered by an experienced lender)

What are Banks looking out for in loan applications?

Whenever you seek loans, there are certain fundamentals you must not overlook. These fundamentals are the yardstick lenders use in deciding whether or not to grant your request for loans. Here are the fundamentals;

Security of borrowed capital. All lenders are interested in knowing whether or not they will ever recover their loaned money or asset (what they simply want is an assurance that their borrowed capital is at least intact). If this question cannot be sufficiently answered then the lenders would rather keep their money than take whatever profit or interest your venture promises. Hence they may consider your possession of collateral or guarantor/sortie as enough protection from the risk of loan loss. Besides this having a good reputation or integrity could also provide a measure of assurance to the lender.

Knowledge and/or experience of intending venture by the loan applicant. How well you know and understand your business will determine whether the lenders would consider your application a big risk, mild risk or no risk whatsoever. Your knowledge and experience in your intending business is viewed by lenders as capital in lieu of money.

Purpose for seeking loan. Why do you need the loan? What will you do with the borrowed capital? How will you effectively use the loan to accomplish your financial goal? The bank is very much interested in knowing why their capital is needed and how their capital will be used.

Repayment plan. How will you repay the loan? The bank will not suggest to you how you should pay back. After asking sufficient questions about your intending or existing business, he/she will be interested in knowing whether you have any plans to repay and when the plan will take effect. The reason this aspect matters to the bank is because it ultimately determines whether you are out to take him/her for a ride. Will you be so interested in seeking a loan to solve a ‘problem’ and not know how to repay it? A poor repayment plan is a slap in the face of any willing lender. Your entire application will be rejected on this sole oversight.

How committed are you to your venture? The banks want to know if you are willing to take reasonable risks in your business in order to make it succeed. In addition they want to know whether you are willing to sacrifice some of your valued assets to make your venture a success. This commitment on your part tells them you consider the success of your venture very important and since the repayment of loan plus interest depends on the success of your business, the banks will often feel convinced that you deserve the loan.


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