Two heads are better than one: Hiring an experienced and savvy business loan broker can make it a lot easier to land a loan. Photo credit: Pexels
You’ve probably heard that the best time to apply for a business loan is when you don’t need one that urgently.
But unless you happen to be Warren Buffett, most of us aren’t that forward-looking. So as an SME owner, you may find yourself in the unfortunate situation of needing a loan very urgently for your business – yet not being able to get one despite your best efforts.
In such instances, you may want to consider engaging a business loan broker.
If you are pressed for time, confused about the loan application process or don’t have the slightest clue where to start or who to approach, hiring a business loan broker can be a convenient option as he or she will take care of the entire application process.
After all, many (though not all) business loan brokers used to be relationship managers before they decided to strike out on their own. Such brokers are likely to have a network of contacts at their fingertips, and will know whom to approach for various loans.
A good broker will have the expertise and intuition to evaluate your case based on your needs and limitations at that point in time. Using that information, the broker will find lenders who may approve your loan.
The business loan broker will do the legwork for you – approaching Lender A, B, C and so on – until he or she meets with a lender who agrees to give you a loan.
Incidentally, this is also when the broker can get paid, as the broker earns a fee when the bank loan he recommends to you gets approved by a financier – be it a bank or private lender.
This fee varies, but usually constitutes a percentage of the loan amount. Make sure you are agreeable to the fee before you hire the broker.
Here are some scenarios when it may be a good idea to work with a business loan broker:
Banks consider the personal credit records of company directors before they decide to grant a loan because such records are good indicators of credit health.
If you are a company director yourself, remember that company directors with a history of late or defaulted payments, involuntary settlements or even bankruptcy will stand a much lower chance of getting a loan.
Personal credit records are available from Credit Bureau Singapore (CBS) or Experian.
Although there is probably no time when you need a loan more than when you have just set up a new business, the world sadly (and ironically) doesn’t work that way.
Banks and financiers are not likely to put themselves at risk by giving a brand-new company a loan. This is because you have nothing to show for and no way of proving that your business is profitable – which means that your risk of defaulting on the loan is very high.
In general, this is why your business needs to be at least six months old (preferably at least one year old) before you apply for a business loan.
But the business loan broker you hire might be able to help you make a stronger case if he or she has excellent working relationships with banks and financiers.
For security and competitive reasons, banks will never reveal the specifics of the criteria loan applicants need to fulfil before their loans get approved.
Neither will they reveal what exactly it was about your loan application that made them reject it.
This is when your business loan broker can advise you on how to improve your chances of having your loan approved.
With a little expert help, who knows? Things may just work out in your favour.
Applying for a loan can be a lonely, cold and depressing affair – especially when you get rejected repeatedly.
Most of the time, it helps if you know a few relationship managers from various banks.
If you can, try to develop friendly relations with them – because they may then be more willing to push harder to get your loan application approved.
If you don’t know any relationship managers, your next best bet is a business loan broker.
There are a few documents that you need to prepare in your loan application.
These are: Your company business profile from the Accounting and Corporate Regulatory Authority; the personal credit scores of all company directors from CBS; the last two years’ of your company’s financial statements; the last six months’ of bank statements; and the last two years’ of your company directors’ tax bills (also known as the Notice of Assessment).
These documents will help the bank get a clearer idea of your company directors’ credit health, the amount of debt owed by each of your directors, and the company; and your company’s financial performance.
If you have trouble getting all these documents ready, your business loan broker will be able to help you out.
Not all loans are the same. Apart from secured and unsecured loans (which are standard term loans), there are other types of loans you can consider.
For instance, you can consider an overdraft or line of credit, invoice financing, invoice factoring, purchase financing, and more.
Be clear about what you need the loan for. For instance, is it for your payroll? Or is it to enable your business to grow more quickly or to keep new orders coming in without having to wait 60 days to get paid?
In which case, invoice financing or invoice factoring would be a good bet.
If you’re still confused, the best thing to do is to sit down with your broker and work out why you need the loan before choosing one that best suits your needs.
It is normal to make some mistakes during the loan application process – especially if you have never done it before.
However, it is hard to know what to rectify when most financial institutions (FIs) do not reveal the exact reason for rejection. It then becomes very disheartening when you get rejected repeatedly by different FIs.
Save the legwork of having to reapply again and again with other FIs by working with a business loan broker.
Not only can the broker help you determine what went wrong; he or she will know who best to approach next after considering the amount you are looking at and your specific needs or constraints.
As the Chinese saying goes, a problem is not a problem if it can be solved through money.
Instead of throwing shots in the dark and wasting time reapplying to various FIs, let your trusty business loan broker take care of it.
All you need to do is pay him or her the fee you both agreed on once you get your loan approved.
That said, read the contract carefully (including the fine print), ask plenty of questions, and make sure you are not agreeing to anything you didn’t know about.
Here’s another option if you are not keen on dealing with a broker: A fee-free digital loan marketplace.
A digital loan marketplace like Lendingpot was set up for one purpose: To make it simpler, easier and more affordable for SMEs to apply for a business loan.
With just one online application, Lendingpot connects SMEs to its partner network of 45 banks, non-bank financial institutions, peer-to-peer lenders, private lenders and family offices – for free.
All SME owners need to do is fill up an online application form and submit relevant documents (such as profit-and-loss statements) through Lendingpot’s secure online portal.
Find out more here. You can even do a loan eligibility check or estimate how much your property is worth if you intend to use it as collateral for your loan.
So get started now. Sign up for an account, then submit your business financing request to kickstart your loan application journey.
Remember – it just takes one application online to reach more than 45 lenders – at zero cost.
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.