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Applying for Your First Business Loan: 10 Things to Prepare

Business Loan

In a country like the Philippines, interest in securing business loans is at a record high, likely due to the opportunities created by the booming local e-commerce market. Searching “business loan Philippines” on Google alone yields over 88.5 million hits, indicating a healthy amount of interest.

This might be because for newly minted business owners, securing their first business loan is a significant milestone. After all, loans are not only a source of funding, but an expression of confidence in one’s ideas. Being able to secure business banking loans for a small-to-medium enterprise (SME) or startup is even more impressive given that reputable financial institutions tend to have very high standards for loan applicants.

Whoever you borrow from, however, the process of getting loans for businesses can be difficult—particularly if it’s your first time securing one. To help you navigate the process, here are several things you should prepare when applying for your first business loan:

1) Collateral

Some major digital banks like Maya offer no-collateral business banking loan options to qualified SMEs and startups. In most cases, however, you’ll need to pledge some kind of collateral if you want to be able to secure a loan for a sizable amount. Vehicles, equipment, real estate, patents, stocks, inventory, and other sufficiently valuable assets could all be used to serve as a guarantee in case you are unable to repay your lender.

2) A Business Plan

Most lenders will require you to craft a comprehensive business plan that outlines your business goals, strategies, target market, advantages over your competitors, and financial projections. This document outlines your vision and helps lenders assess the viability of your business and the relative risk that they need to take on if they grant your loan request. Make sure you’ve drafted one before applying for your first business loan.

3) Financial Statements

To support your business plan and make a better case for your loan request, you will also need to prepare accurate financial reports. On top of income statements, get ready to procure balance sheets and cash flow statements. These documents will provide lenders with insight into your business’s financial health, revenue generation, and ability to repay your loan. The lender may also require an audit to be performed on your business to ensure that they are receiving accurate data.

4) A Business Pitch or Presentation

You might be surprised to know that your presentation skills may matter as much as your ability to prepare a business plan or financial statements when you’re applying for your first business loan. This is especially true when you’re requesting a loan from a bank that may not necessarily understand your business or your market.

If there’s a need for you to do so, practice a business pitch or create a simple-to-understand presentation document for your lender. By doing so, you’ll be able to maximize your chances of making a good impression on the bank officers or authorized representatives in charge of approving your loan.

5) Your Credit History

Lenders consider your creditworthiness when evaluating loan applications. With knowledge of your personal and business credit history, you’ll be able to calculate your odds of getting a good loan and fine-tune your funding strategy. If you’re based in the Philippines, consider requesting a credit report from the Credit Information Corporation (CIC) to review your credit standing and identify any discrepancies or areas for improvement.

6) Business Registration and Permits

Reputable lenders will not entertain loan requests from businesses that have failed to meet basic legal requirements. Before applying for a loan, you need to make sure your SME or startup is properly registered with the relevant national and local government bodies. Even if it seems like an inconvenience, obtaining the necessary permits and licenses required for your industry is a non-negotiable part of securing a high-quality loan from a reputable institution.

7) Loan Amount and Purpose

Determine the specific loan amount you need and clearly articulate its purpose. Whether it’s for purchasing equipment, expanding inventory, or covering operational expenses, a well-defined loan purpose shows lenders that you have a strategic plan for utilizing the funds. Lenders will be more likely to deny your request if you have no specific vision for how the loan amount will be spent.

8) Personal and Business Tax Returns

Financial institutions will require copies of your personal and business tax returns for the past few years. These documents allow them to assess your financial stability as well as your compliance with tax laws, which ultimately gives them a better idea of your risk profile. Don’t be remiss in compiling these documents for your lender to go over.

9) Legal and Financial Documentation

Lenders may also ask you to gather important legal and financial documents, such as contracts, leases, partnership agreements, and insurance policies. These provide evidence of your business’s legal standing and its ability to meet its financial obligations. Again, keep copies of these on hand in case your lender asks for specific documents.

10) Professional References

Lastly, if it’s your first time taking out a business banking loan, lenders may request a list of professional references, including previous clients, suppliers, or industry experts who can vouch for your reputation and credibility. Positive references add value to your loan application and serve as an assurance that you will comply with the loan’s requirements.

Getting your first business loan is no easy task, especially if you haven’t been approved for one in the past. However, with the right preparation, you can streamline the application process and increase your chances of securing a valuable source of funding for your SME or startup. Plus, once you secure and pay off that first loan, applying for future loans is usually much easier. Do the prep work and clear that milestone of getting your first business loan, all so that you can truly make waves in the Philippine and global markets.

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