We see a pattern every day. The business owner is aware that they require funding for a new location, perhaps to set up a second business, take on a larger contract, purchase equipment or simply stabilise cash flow during a slow period. They try to apply. Then they face problems, delays or requests to obtain additional documents, or a complete rejection that shouldn’t have to occur. The majority of the time it wasn’t business that was the issue. The issue was with the software.
Being able to get commercial finance approved isn’t only about whether your financials are sufficient. It’s about how well you explain your situation and how well-prepared the documents you’ve submitted are, as well as if the type of finance you’re requesting actually corresponds to the requirements you have. These steps are the ones we guide our customers through here at Service Capital before they submit any documents.
First Step: Become clear on why you need the money
This may sound obvious; however, this is where most applications fall short. The lenders don’t want to be aware of the amount you’re requesting. They are interested in knowing what the loan is for and how it relates to your company. An unspecific answer such as “general business needs” will raise more questions than it addresses.
Make sure you are specific. Are you expanding to the new location? Do you need to bridge the gap between an invoice that is issued and the invoice being paid? purchasing machinery to do more work? Each one has a different financing profile. The more specifically you understand the goal and goals, the easier it is to connect you with the appropriate products.
If you’re considering purchasing equipment, I’d say you should think about leasing equipment instead of a simple purchase loan. Leasing helps you save money on your working capital and makes your monthly payments in check and often provides tax benefits that are worth factoring in. There are times when it’s not the initial thought; however, for businesses where equipment is a major component of operations, it’s typically the best option.
2. Review your financial situation in a candid manner
Before a lender evaluates your financials, you must. Take a look at your income over the last 12 months; your normal monthly expenses; any current debt repayments as well as credit obligations; and the current balance of your cash. Do not aim to impress anyone – just to give an accurate picture of where you are.
This is significant because of two reasons: it first reveals the kind of repayment you could be able to manage without putting pressure on the company. It also prepares you for the questions that a lender will ask. A financing conversation with no knowledge of your own personal numbers is among the most commonly used ways for businesses to make a mess of an otherwise good application.
If there are gaps –for example, a slow quarter or a missed due date in the past Think about what you’ll do to be able to explain these. Lenders don’t want absolute perfection. They’re seeking honesty and understanding about the company.
3. Select the financing type that is right for you.
There aren’t all funding options that work in every circumstance. Applying for the wrong type of funding can be a waste of time both ways. This is a simple breakdown of the major alternatives:
Term loans offer you a fixed lump sum that you pay back over a predetermined time frame with regular payments. They’re great for funding one-time investment projects such as a remodel, a business acquisition, or a particular capital purchase. You are aware of exactly how much you owe and when.
Lines of credit allow you to access an account that you can use as you require and then repay on the basis of a revolving loan. They only charge interest on the funds you actually need, which makes them ideal for managing cash flow instead of the financing of a specific purchase.
Leasing equipment deserves a distinct note in this. Instead of buying the equipment in full or obtaining a substantial loan for it, leasing lets you make use of the equipment while spreading the cost over a period of time. For companies in the manufacturing, construction, transportation or healthcare areas where equipment is linked directly to income, it is usually the most efficient alternative. The approval rates are generally higher since the equipment acts as a security.
If you’re unsure what option is right for you, it’s an acceptable question to ask a lender prior to you making an application. Service Capital is a company that offers Service Capital; that kind of conversation is the way we generally begin knowing the circumstances before suggesting an option.
4. Gather Your Documents in Order Before You Apply
This stage snares more applications than others. Applications are stalled or rejected not because the company doesn’t fit the criteria, but because the information is insufficient or out of date.
The majority of lenders will require one or more of the following: the most current financial reports (typically between one and two years) as well as up to three months’ statements from banks and evidence of your business registration and ownership structure as well as your latest tax return. A few lenders will also require an explanation of the way the money will be used.
Gather all the necessary documents before you send in your application. The process of chasing documents after you’ve submitted delays the process, and sometimes, it signals lenders that your business isn’t properly organised. Complete applications are faster and make a more positive first impression.
Step 5 Upload an Application that’s Complete and Complete
After you’ve got everything in place Take the time to review the application thoroughly before you submit. Minor mistakes — the wrong number or an unmatched number on the application and your bank statements, or a field that’s left blank – create friction that delays approvals and may trigger further investigation.
Be realistic with your figures. The idea of inflated revenue projections or downplaying liabilities may appear to aid your case; however, experienced lenders will notice the inconsistent numbers, and they can damage your credibility. Make sure you present the company as it actually exists and let the real facts speak for themselves.
The most effective applications for commercial loans are those that provide a clear, constant story: here’s the company, here’s the scenario and what the loan is intended for, and then here’s the method of repayment. This is the only thing a lender will be trying to make clear.
Step 6: Go through the agreement. Before signing anything
If an approval is granted, it’s tempting to act swiftly, particularly in the case of waiting for money to move on something that is time-sensitive. However, take the time to thoroughly read the terms of reference before committing.
Take a look beyond the headline interest rate. Examine the repayment schedule and see if it is in line with the flow of cash. Know how much the loan is for the whole period. Consider whether there are penalties for early repayment when your financial situation improves and you wish to pay off the loan earlier. Find out what options are available for your income if it is decreased in the month.
A trustworthy lender will be honest regarding all this and will be happy to answer any questions. If the terms of the loan are unclear, you should ask questions prior to signing. The terms you sign in the present will be the ones you’ll have to be controlling throughout the loan.
Preparation Is What Defining Approvals and Declines
The businesses that get financed don’t always have the best financials. They’re usually the ones that had a plan in place — who had their numbers in hand and had all the documents in place and picked the appropriate product for their needs and subsequently put together an application that was easy for the lender to accept.
None of these steps requires the expertise of a specialist. They need to be clear about your needs and the determination to complete the required research prior to applying. This is the foundation service Capital helps businesses with every day – from the spectrum of term loans, lines of credit, leases of machinery and other financing options that are suited to companies of different sizes.
If you’re considering applying and would like to learn about the options available before committing to anything, head over to servicecapital.ca and start a discussion there.
