Business Loans

Mistakes to Avoid when Applying for a Corporate Loan in SG

Lina Tay
June 27, 2023

Mistakes to Avoid When Applying for a Corporate Loan

In today’s competitive business environment, there are abundant opportunities for growth. As a business owner, corporate loans can play a vital role in opening doors for the expansion and development of your brand. This is why it is essential, regardless of your specific reasons for seeking a corporate loan, to consider avoiding critical mistakes commonly made by business owners during the loan application process.

If you are familiar with the norms of the financial industry, you’ll know corporate loans have stringent conditions for approval, especially when compared to credit facilities such as credit cards and personal loans. Therefore, it is crucial to be aware of the most common mistakes to avoid when applying for a corporate loan in Singapore. By understanding and steering clear of these mistakes you can increase your chances of securing a loan needed to support your business endeavours.

How Do Corporate Loan Applications Work in SG?

Banks and other lending institutions generally prefer to extend business loans to companies that they’re confident will make full and timely repayments. For these lenders, minimising loan defaulters and non-performing loans is a critical aspect of risk management and maintaining asset value.

As a business owner, your task is to convince lenders that you are capable of repaying the loan, along with interest, in a timely manner. If you can achieve this successfully, your chances of getting your corporate loan approved increases significantly.

Typically, businesses that apply for a loan will be evaluated based on the following criteria:

  • Bank statements from the previous 6 months
  • Financial statements for the past 2 years
  • Financial profiles of all current directors
  • Business profile information

These are the basic documents lenders usually request for. However, different types of corporate loans may have additional documentation requirements.

Common Loan Application Mistakes Business Owners Should Avoid

Optimising your chances of securing a corporate loan isn’t difficult. One strategy that you can employ would be to avoid these common mistakes :

1. Excessive Borrowing or Overleveraging

As a business, excessive borrowing is a critical mistake. This is because it can lead to issues like limited financial flexibility, decreased cash flow and increased cost of capital.

Additionally, your business will also suffer from limited strategic expansion options in the future. Your ability to invest in growth and adapt to the changing market may also be reduced. Additionally, you may find that credit may not be as readily available to you in the future, due to a damaged financial reputation.

2. Having Low Credit Ratings

One of the considerations a lender will make when approving your loan is to examine the financial status of the company directors. A poor credit score on the part of the directors can have a negative impact on the approval of their corporate loan application.

A low personal credit score can create the perception that the company directors struggle with managing their own personal debts. This, in turn, diminishes their credibility as trustworthy borrowers when it comes to obtaining corporate loans.

If you’re a company director seeking a business loan, it’s advisable to work on improving your personal credit scores before applying. Some of the ways you can improve your personal credit score, include paying outstanding debts, managing credit cards diligently, and avoiding taking multiple loans at the same time.

A good gauge to refer to is to use the debt to net income ratio. This should not exceed more than 4 times. This means that if you have an annual net income of $100,000, you should not have a debt level of more than $400,000. This also means that it will take at least 4 full years to pay down your principal not including your interest. If your business is not yet profitable, then your total debt should not exceed more than 50% of your annual revenue. Therefore a business with a revenue of $700,000 should not have more than $350,000 in total debt. 

3. Opting for The First Choice

Failing to compare multiple lenders can be a costly mistake. It is crucial to conduct thorough market research to explore the various corporate loans available. Consider comparing the various business loans through platforms like Lendingpot.

Each lender offers different terms, including interest rates, repayment options, and more. By diligently comparing these options, you can enhance your chances of securing the most advantageous loan terms for your company. Taking the time to compare lenders will help you identify the most suitable loan that aligns with your business needs and financial goals.

4. Skimming Through the Fine Print

Reviewing the terms and conditions associated with a loan may seem like a tedious task during the application process. However, it is crucial and necessary for you to fully comprehend them.

As business owners, you may encounter urgent financing needs and therefore desire to expedite the bureaucratic process. It can be tempting to quickly skim through the fine print and hastily sign the documents without a thorough understanding.

However, this behaviour carries significant risks as there may be clauses that could have negative repercussions for you or your business in the future. It is vital to carefully read and comprehend the loan contract and other relevant documents before signing them. If you encounter any uncertainties or struggle with legal jargon or concepts, it is advisable to seek guidance from an expert or professional.

5. Neglecting to Update Your Financial Records

Financial records play a crucial role in determining your eligibility for a business loan. As previously stated, lenders require borrowers to provide financial records for both the company as well as its directors. Why? Because it helps them determine whether a borrower has the financial wherewithal to repay the loan.

As such, you want to make sure that the records of your company and its directors are accurate and meet relevant standards and practices. By doing so, you enhance your credibility and demonstrate your company's professionalism, which can positively impact your chances of securing financing.

Apart from your business records, it is also important to be diligent to maintain your own personal financial records. Besides making good repayment on your personal loans for a good credit bureau score, it is essential that you file your taxes diligently as it will serve as income proof which validates you as a guarantor for your business. 

6. Your Company’s Finances are Volatile

Applying for a loan at the right time is crucial. If you apply for a corporate loan while your company is financially unstable or experiencing losses, the chances of your loan being approved may decrease.

This is because the lenders may doubt your ability to repay the loan in a timely manner. Therefore, before proceeding with your application, your financial records should at least show that your company is either recovering financially, has the potential to generate profits in the future or is on a growth trajectory.

Final Thoughts

Understanding and addressing common mistakes can significantly improve your chances of securing a corporate loan. The process may not be straightforward, which is why we recommend submitting your application through our platform. With a single application and virtually no cost, you can gain access to personalised offers from over 45 banks and financial institutions we partner with.

If you find any of the steps challenging, our experts are readily available to guide you through the complex processes. They are committed to helping you achieve optimal outcomes in both approval and pricing.

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

Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.

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