How to Qualify for SME Loans in Easy Steps

For a cash-strapped business, a loan is a financial lifeline that helps it get through a difficult time or grab a good opportunity. The right amount of capital at the right time can help a business to grow, expand its territories and increase revenues through better investments in promising projects. However, companies need to keep themselves financially fit and their books of accounts up-to-date before applying for any loan. While there are many options available to businesses to get credit such as bank loans, lines of credit etc. they should follow the tips mentioned here to qualify for SME loans easily.
 

How to Qualify for SME Loans

1. Maintain a good credit score

A good credit score is an indication of good financial health. Repaying all dues on time and borrowing responsibly can help in increasing the credit score. Remember that lenders look at the credit score to review your financial position, and a good credit score helps you easily qualify for the loan.

2. Anticipate your lender’s criteria and lending process

Anticipate your lender’s lending criteria and their lending process to be better prepared at every stage. Look at things from the lender’s point of view to understand how they will review your loan application. Lenders normally examine your assets in the business, investors in the company, how long the business has been running, financial statements, outstanding loans and cash flow estimations. Meeting the requirements of the lenders will make your application stronger for qualification.

3. Be realistic

If you want to get approved for an SME loan without any hassle, be realistic. Always be sure of the amount of money your company requires. If you take out an unsecured company loan by going over your budget, the interest and EMIs will surely ruin your finances. Similarly, if you are unable to raise sufficient finances, this will also be bad for your firm. You won't be able to meet your fundamental needs, and there is a high probability of your entire production or operating unit getting impacted due to this. It is recommended that you get advice from the heads of the various departments to assess your needs.

4. Proper repayment plan

When asking for an SME loan, be prepared to demonstrate your ability to repay it. This is one of the most crucial pieces of information your lender wants to know. One of the most common reasons why new businesses fail to qualify for a business loan is the lack of proper financial history. But if your business is more than five years old, you can show the lender your business profitability, and different types of sources from where you have raised funding and how you are repaying them. You may also provide evidence of business cash reserves that you are willing to use at the time of a business crisis.

5. Business plan

Always be prepared to offer the lender a clear business strategy. But first, figure out what the most important components of your business are. Examine the debt-to-equity and current ratios in your business. Keep an eye on the state of your company's free cash flow. If your company has any obsolete assets, get rid of them first to improve your liquidity.
 
Prepare a comprehensive marketing and business expansion plan once you have completed the prior tasks. Give the lender an idea of how you will use the revenue and the SME loan to help your business expand. You must also demonstrate to them your company's three to five years sales projections. All of these minor details will advise the lender as to whether or not their funds are safe.

6. Present your financial statements

Financial statements such as a balance sheet, cash flows, and profit and loss statements are key documents for any business. It gives lenders a detailed overview of how your company is performing. If the lender finds that you are into a loss-making business, they will reject your application right away. If possible, get your financials audited by a qualified CA.