The coronavirus pandemic has strained small businesses in a number of ways. With entire towns and cities going under complete lockdown, retail and restaurant outlets, who survive on the narrowest of margins, are bound to be the hardest hit. To help combat some of these challenges, it is vital to avail of small business loans to clear fixed debts or other bills, which could not be paid otherwise.
Global analysis has shown that micro and small business enterprises are unable to raise a transient working capital as easily as their medium and large peers. While a nudge or two from the government to traditional lenders and alternative small business loan companies is bound to increase the cash flow, demand needs to be first ramped up substantially for growth to improve.
How do I qualify for a small business loan?
Good and effective finance management makes a big difference between a business riding high up the ladder of success and the one that falters at the very first rung. Follow these five proven financial tips for your business to survive in the bad times and to ascend to the next level when things improve.
- Go digital: With the proliferation of so many cloud-based tools, organize things on a digital platform where you can backup all the important business data. Not only it eliminates heaps of paperwork, it helps in streamlining your records to file taxes or avail of loans.
- Credit score: Financial institutions use credit rating as a yardstick to determine the credit worthiness of any company or prospective client. A good credit score will give them an idea on whether you will default on a small business loan or establish goodwill to improve the financial success of your business.
- Age of business: Since neart 20% of businesses fail within a year of starting, banks and online lenders require the minimum business age criteria to be met. Lenders then take into account how long the business bank accounts have been in operation, rather than the date when the company was registered.
- Collateral: For certain loan approvals, lenders may ask for collateral, like tangible assets owned by the borrower. Decide if you are okay with the collateral or look elsewhere for unsecured loans.
- Cash flow and income: Cash flow is that part of business health that can make or break your enterprise. Maintaining a healthy stream of cash tells lenders that you are capable of repaying the loan payments. If your company has unpaid invoices, you can sell them to a third party to generate cash, instead of waiting for the customer to pay up.
Key steps to get a small business loan.
Securing funds for most small businesses, even at the best of times is difficult, and during a pandemic, the task becomes doubly challenging. The closures may be temporary, but no one knows when the business doors will open up fully again. In the prevailing circumstances, a small loan could be the lifeline you are looking for to get you past this difficult stretch. You can get business loans through various providers, including government bodies, banks, or private lenders. You can look into different options available to get a dti business loan based on your business type and permits. Furthermore, whether you have never borrowed before or are considering taking a loan in the near future, here are some things to keep in mind before availing of a small business loan during Covid-19.
Banks and traditional lenders:
Traditional lenders like banks and other financial institutions offer business loans but their approval takes longer. It may take weeks just to process your application and in the end they may refuse as there is a reluctance to lend during a crisis as they are worried about losses.
Alternative Lenders: Another option to take a small loan is by approaching an alternative lender. These agencies specialize in quick financing, sometimes within a matter of days, to provide finance in an emergency. Moreover, there is no collateral required and the payment is simple and automatic once approved.
Your state or government may also offer loans during the pandemic and are a good option, providing you can meet their requirements as there is a lot of fine print to read before you can become eligible.
Now that you have narrowed down the search, it is time to get ready for the application process.
- Keep the documents ready:
Business returns, bank statements, current assets, past tax papers and other documents on how you plan to use the loan must be kept handy to show to prospective lenders.
- Consider using collateral:
While this may improve your chances of qualifying, the drawback is you can lose the asset if you can’t pay off your debt.
- Review the terms of the lender
Each lender has different requirements in the application. While the government publishes information on their website so do private lenders. So check them carefully to find a lender which suits your requirements.
The loan process:
Once your paperwork is complete, you can begin the application process by reaching out to your target lender. If you are applying through the government, check out on the process as it may be affected by the coronavirus program. On the other hand, private lenders typically use short online methods or ask their specialist to reach out to you over the phone.
The timeline depends entirely on the lender. Alternative lenders will always be the fastest, while government funding takes much longer. A possible strategy to adopt is to take a quick loan from an alternative lender, and once you qualify for a better program, use the funds to pay off your primary loan.