Business Loans

5 ways to get your business loan application approved

Belinda Wan
April 8, 2021

Improve your chances of getting a business loan by knowing what to take note of in your application. Photo credit: Pexels

It is nothing short of frustrating when your loan applications keep getting rejected by lenders and yet you still have no idea what you are doing wrong. 

We talk to Mr Joe Low, the Director of private lending company Affinity Financial Services, to get some tips on what SME owners can do to increase the odds of applying for a business loan successfully.

In your experience, why do SME owners get rejected when they apply for a business loan?

Our credit assessment team rejects business loan applicants mainly due to low business volume, high borrowings, an unsatisfactory company credit history, and personal basis.   

If a business is not generating enough sales, it will not have a good chance of paying back the loan. Or if the business has high borrowings, the loan application is likely to be unsuccessful because the risk to a private lender is too high. 

Lastly, if the business owners themselves have a history of unsatisfactory credit history (i.e. late in or not making loan repayments), this would also affect the loan application.

What should they do to get around these pitfalls? 

To be better presented for a business loan, business owners should: 

1. Have an active and revenue-generating business

New and inactive businesses are a no-no.

2. Be realistic about how much you can afford for loan repayments

It is a good practice to not overstretch your business cashflow.

3. Only borrow what your business needs

Since loans need to be paid back with interest, high borrowings pose a big risk to your company.

4. Ensure that your loan repayments are prompt and regular

Active cashflow management means maintaining a strong and healthy credit rating for the company and yourself.

5. Keep important documents on hand

If you ever get into a lawsuit due to money matters, always keep the documentation as proof to show that the case is resolved and closed. 

What do SME owners tend to overlook when applying for loans?

Most SME owners are simply too busy to keep good documentation records. They also often do not see the importance of a good credit standing and tend to feel that they will not need a business loan, until a crisis hits.

What are some pros and cons of securing a loan from a private lender?

The pros of lending from a private lender are speed and flexibility. This is what banks lack. 

Being larger organizations, banks have more stringent credit parameters and protocols to determine if they should lend to SMEs. It is not easy for them to be flexible and listen to the needs of every SME. 

Alternative lenders fill in gaps that banks are not able to fulfil. But the key disadvantage of borrowing from an alternative lender is the higher cost of borrowings. 

This is because the cost of funding for banks is very much lower than that of private lenders, and the risk appetite of private lenders is generally higher than banks.

Hence, private lenders tend to charge higher interest rates than banks.

Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Belinda loves thinking about random stuff, and collecting useless bits of facts and trivia. She often roots for the underdog, and believes the world needs more happy endings.

business loan
SME owners
loan application
private lenders
affinity financial services
loan rejection
credit rating

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