One of the biggest challenges you may face as a business owner is the procurement of capital either to start or grow their business. You can choose to raise the money yourself or look for investors to finance your business. You can also look into informal loan services such as mobile loans. However, if you are looking to get a loan from a financial institution such as a bank or microfinance company, there are a couple of things you should know.
Getting a loan approved is not always the easiest task. You have to be ready to go through a process. There are also a few mistakes that business owners tend to make when securing a loan. Here are a couple of things you should do.
Talk to your accountant
If you have an accountant, he/she should be the person you should talk to first. However, a trusted friend or colleague with financial expertise can also work. It needs to be someone you can divulge your financial status without holding anything back. This allows them to advise you on how to go about taking a loan. They tell you what is realistic and what is reaching too far. This way you can go for a loan that will benefit your business but you will also be able to pay it back.
Check Your Personal Credit Score
This is where all those debts you took way back when may come to haunt you. If you are securing a loan for your first business, your business financial score may not be well established. Financial Institutions use your personal credit score to evaluate you. If you are thinking of getting a loan, you need to check your personal credit score and see what can be done about it.
To check your CRB status, simply dial *433# and follow the prompts. For a fee of Kshs 50, you are entitled to one report per year. To find out who listed you, you need to pay an extra Kshs 50. Once you clear all your defaulted loans, you pay a fee of Kshs 2,200 to get your name cleared.
Research the best options
There are different financial institutions and they all offer different services. Do your research and find out what works not only for your business but also for the industry you are in. Finding lenders that complement your business goes a long way in ensuring you secure the loan. Know their rates, guarantor requirements, default process, and payment schedules. This way you can also decide what works for you too.
Get your affairs in order
If you want to get that loan in the bag, you must be prepared to provide all the required information and documents. Be ready to answer any questions about your business. It is your responsibility to know your business or business idea inside out. This communicates to the lender that you understand how your business model works. Why should they give their money to someone who knows little to nothing about how their own business runs? For an already established business, you will also need to provide financial statements such as; profit and loss statements, income tax returns and your business license.
Detail a clear purpose for your loan
To determine the feasibility of your application, lenders need to know exactly how you plan to use the money. They must protect themselves from loan defaulters. Writing up a detailed loan proposal helps the lender follow your train of thought and understand your plan for your business. The proposal should include details such as how much money you need, how you plan to use the money, your repayment plan and what course of action you will take in the event that you are unable to pay back the loan.
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