The Essentials of SME Loans

The importance of financial backing in the form of business loans cannot be overstated.

Financial backing is especially essential for those businesses looking to grow or moving on to new phases of development.

Over the years, the business loan market has changed dramatically.

Nowadays, there are numerous ways for business owners to get an SME loan to help steer their business in the right direction.

However, prior to applying for a loan, you need to answer key questions to help you determine the right kind of lender to approach and the best type of SME loan to go for:

SME loan

  • How much money do I need?
  • What do I need the money for?
  • How long will it take for me to pay everything back?
  • What is the current financial health of my business?
  • How fast can I get the money?
  • How much collateral, if any, do I have to put up?

If you have not decided on the type of loan to go for yet, below are some options you might want to consider:

Working capital loans – This loan type is the ideal short-term solution for businesses that need funding to help run their operation. Working capital loans are provided by banks as well as alternative lenders. One key advantage of a working capital loan is it helps keep the venture running while the business is looking for effective ways to maximize revenue.

Merchant cash advance – This kind is offered to businesses based on the volume of their credit card transactions. Repayment terms for this loan type will vary from one lender to another. While some lenders will opt to be paid a fixed amount from the merchant account daily, others prefer to take a percentage of the daily credit card sales. Relatively easy to obtain, merchant cash advance is the ideal option for those with strong credit card sales like restaurants, retailers, and other service businesses.

Equipment loans – Equipment loans provide money to businesses for office equipment such as computers, copy machines or other things like tools, machinery, and vehicles. Rather than paying for similar purchases all at once, this loan type allows business owners to make monthly payments for the items.

Professional practice loans – This loan is specifically designed for providers of professional services such as accounting, legal, insurance, architecture, health care, and veterinary fields. Typically, professional practice loans are used to buy real estate, renovate the office space, refinance a debt, and purchase new equipment.

Once you have decided on the loan to go for, below are some key tips that will help you get the nod:

Cash flow. If you are able to show potential lenders you have a reliable cash flow, you are in a way ensuring them you have enough to pay your obligations on time. Be prepared to provide bank statements, tax returns, and financial statements when needed. Lenders often look into the aforementioned documents to get a much better insight of both the performance and the liquidity of the business.

Payment history. Ideally, businesses should aim to sustain a favorable payment history. Oftentimes, lenders would want to be assured you are keen about paying your obligations and you pay them on the agreed time. If you will be asked to provide a credit report, check to see if all the information reflected are correct. Also, consider providing references and contact information of people (trade suppliers, banks, etc.) that can confirm your good payment history.

Business judgment. While some will consider business plans as outdated, many lenders would still want to get their hands on one. Apart from the basics, a robust business plan should include potential challenges you are likely to encounter and how you intend to surpass them. You should also state in clear and impartial language your strategies, objectives, and financial forecasts. In essence, you have to show your potential lenders you will have a means of paying your obligations on time.

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