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We have heard of so many success stories, the grass to grace kind. What no one talks about is no matter how hard you work or how determined you are to succeed, at some point, you will need some help. Having a good business idea does not guarantee immediate success. If you are struggling with your business finances, you should consider business loans.

Business loans provide you with the money to expand your business, buy new equipment, stock up your business or deal with daily expenses. If it is your first time applying for a loan, you may not know where to start or the requirements needed to qualify for a business loan.

In this article, we will go through the steps you can follow to examine what you need to get a loan, your options and how to prepare for the applications.

 

1.      Why do you need the loan

 

The creditor will loan you a huge amount of money; therefore, they will want to know where and how you are spending it. This is because how you spend the acquired funds will determine your ability to repay the loan. For example, a lender is less likely to lend you money if you are looking to buy something not business related. However, there are a few factors that would get you the loan:

·         Buying equipment

 

If you need expensive equipment for your business to help with manufacturing your products, you’re more likely to qualify for a loan.

·         Expansion

If you have a good business plan and are looking to expand but don’t have enough capital, you will likely get the loan. You must provide your current business models and show that your business can repay the loan.

 

Determine how creditors evaluate potential debtors

 

Before applying for a business loan, it is important to understand what creditors look for before approving your loan. Creditors must determine that you can repay your loan and interest on time. Bearing that in mind, creditors may look at your regular cash flow, how long you’ve been in business, your credit score, your business worth, and your finances.

For example, startups will have a hard time getting finances. This is because for you to qualify for a loan, your business should have a track record of being able to pay your debts. Your business should also have a regular cash flow to indicate that you have the finances to make your monthly payments.

Other lenders, especially if you are looking for a big loan, may need to see your bank statements.

2.      Decide on the kind of loan you need

 

Different types of loans are available in Kenya for businesses, so it is important to decide which one you want before applying. Some of the loans include:

·         Term loans

 These are loans offered by creditors where you are given a large amount of money to be repaid in intervals over an agreed time. They can be short-term or long-term loans. Short-term loans have a repayment period ranging from 2 to 24 months, whereas long-term loans have a repayment period from 2 years up to over ten years, depending on your creditor.

·         Asset loans

These are loans provided to get machinery or assets for your business. They can be cars, medical equipment, IT machines, etc. The advantage of this kind of loan is that the equipment acts like its own collateral.

·         LPO finance

Local purchase order, also known as LPO, is a short-term loan that provides your business with capital to complete pending orders.

 

There are many types of loans; hence you should decide which one you want to apply for instead of blindly applying for any loan.

 

3.      Settle on a creditor

 

There are many creditors in the market, and deciding who to settle for can be daunting. This is because most of these creditors offer a great deal. Some of the factors you should consider when picking a lender include the following:

         i.            The credibility of the lender

Reputable creditors provide their clients with a safe environment to be productive. The creditor should also be licensed.

       ii.            Convenient application process

The application process should not be difficult, and the documents should be easily understandable. You should also be able to do it comfortably from your home. Some companies provide application forms online.

     iii.            good customer service

good customer service comes a long way for a lending company. You should pick one with great service just in case you have questions.

     iv.            Their loan processing period

Depending on how soon you need the money, you should pick a company with a lesser loan processing period.

 

 

 

4.      Ensure you have the right documentation

 

Once you have decided how much you want and settled on a creditor, you should get your documentation in order. Some of the documents needed are:

a)      Certificate of compliance or incorporation.

b)      Your identity card ID.

c)      Company pin certificate.

d)      Proof of residence and your company’s location.

e)      Your company’s bank statements.

f)       Tax information.

If you are not sure what documents are required, you can contact your creditor before you apply for the loan.

 

5.      Submit the application

 

The last step is to send in the loan application. You can do this either online or in person, depending on your creditor’s preference. Ensure that you have put in all the necessary personal information needed to complete this process. The information includes your name, business name, the amount you need to borrow, why you need the loan, and business tax records. The bank provides other details. Once your application has been submitted, all you can do is wait for feedback from your creditor.

If they approve your loan, you must sign a loan agreement before it is disbursed.

Do not give up if your loan is not approved. You can ask your lender to explain why it wasn’t, and you can work on that.

 

Final thoughts

 

A business loan is important for the growth of your business; therefore, choosing the right business loan is important. Although various lenders are willing to give you money for your business, you should consider many factors before landing on the right one. Before you decide to apply for a business loan, it is important to prepare first so that you can increase your chances of qualifying.

 

If not used properly, business loans can be frustrating and might even bankrupt the business you worked hard to build. It would help if you, therefore, think hard before taking the next step.