When thinking about a business loan, a traditional term loan will usually come to your mind. This loan is one of the most common and easily understood forms of loans. You will borrow a number of previously agreed-upon money and pay off the loan for a certain period of time, either at a fixed or variable interest rate. The length of the payment period can vary, but usually lasts between three and five years.
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In addition to stringent loan requirements, a lengthy application process can make traditional loans inaccessible to SMEs. Small business owners need quick access to funding to meet their short-term business needs; purchase inventory, repair equipment, or take advantage of business opportunities.
This is where alternative lenders are present, offering efficient submission processes, quick access to funding, and flexible loan terms. click here to investigate in online loans payday loans. This platform can be a viable choice for people that need external financing.
How can traditional loans help my business?
Traditional term loans tend to have a large amount of loan value with a long repayment period. In general, these loans are used to fund specific investments, such as equipment purchases, business acquisitions, major renovations or long-term expansion activities.
Are traditional loans right for my business?
The following are general requirements that can help you assess whether a traditional loan is suitable for your business:
- You have a strong loan profile: You have a strong loan profile: Traditional lenders have strict credit terms and conditions. The submission process usually involves several stages, including direct meetings, loan usage presentations and initial assessments. The borrower must meet the application criteria such as having a minimum operational history of two to three years, a certain minimum income and a good credit record. Small business owners often object to meeting traditional loan requirements; while banks do not disclose their level of MSME loan approval. A study in 2015 by Visa and Deloitte showed that 40 percent of MSME actors had difficulty meeting credit requirements because of other guarantee and administrative factors.
- You want to borrow large amounts: In general, banks offer a higher maximum loan amount compared to alternative lenders. The maximum loan amount will vary, but is usually in the range of IDR 100,000,000 to IDR 5,000,000,000.
- You have adequate guarantees: Most traditional lenders will ask for collateral for assets to small business owners to get their loans. The types of assets that can function as collateral are inventory, equipment, invoices, savings, vehicles and real estate.
- You do not need financing in a short time: Banks and traditional lenders usually have a long application process. The length of the process depends on your lender, as well as other factors such as your eligibility and the number of loans you submit. Waiting times can range from a few weeks to two or three months.
Some tips to help you prepare your traditional loan application
Planning and initial preparation is the key
It takes from one to three weeks before you know about the status of your loan application. Therefore, you must plan carefully before making a loan request.
Collect all the required documents before you start submitting a loan application and scan the document so that you have a soft copy ready to be sent online. With good preparation, you can help ensure that your submission runs smoothly, so the process will be faster.
Build your personal credit score
Your personal credit score reflects how well you manage your personal finances. So, this is an indirect indicator of your efforts to handle your business finances, your feasibility and the timeliness in fulfilling your payments. Credit scores are an important consideration factor for lenders for applications for small business loans, especially for new business owners without established business loans.
If your personal credit score is not what you want, then a few steps you can take to increase your score are:
- Make payments on time: Being on time with your bill payments is a simple and basic step to increase your credit score. Having a monthly reminder or arranging automatic payments is a step you can take to build good payment habits.
- Monitor your credit report: Monitor your credit report regularly, and make sure to correct the errors you find, because even the smallest mistakes, such as miscalculations, can affect your credit score. It’s better to sign up for a credit monitoring service, if you manage your personal and business credit accounts simultaneously. This service will continue to monitor your credit report, and notify you of any changes or potential fraud.
Create a solid business plan
A business plan is not always necessary, but putting together a solid action plan will show a clear idea of the direction of your business towards prospective lenders so that it will increase your credibility. Here are some tips that will help your application stand out more:
- Focus on current projects and past successes: this can be a challenge for small business owners to convince lenders of the long-term potential of their business – because future conditions can differ from your current conditions. However, it is easier to convince lenders of your potential by focusing on your current project and achieved success. What activities do you do now to grow your business? What strategies have worked well for your business, and how do I plan to use the funds obtained to advance this business?
- Convey an emergency plan: State the worst possible scenario for your business trip – such as if your expenses are higher than expected, or if you experience sales that are lower than expected – along with your strategy to meet payments in these conditions. This will show potential lenders that you have thought of various scenarios and are ready to make payments even in adverse situations.
- Be prepared to present your business plan: Most banks need direct presentations as part of their loan application process. This is a way for your lender to find out more about your business, what you need and to assess whether you will be a good investment. There is no harm in anticipating questions that might be asked of you by making artificial presentations at home / office.