For an entrepreneur, business funds are critical to kick starting your enterprise, or pushing it to the next level. There are several best practices when it comes to commercial lending that can increase your chances of getting a loan. For starters, you must remember that lending is primarily based on risk. Below are tips that will help you build your case to potential commercial lenders.Evaluate your Business Critically
The best way to evaluate your business is through the eyes of the lender. Obtain several loan applications, and assess your business based on the lender’s requirements. For instance, if yours is a small business, lenders will use a strict criteria when evaluating it. This is because, studies show that half of small businesses do not make it past the first five years. You must therefore assess where your business is in this timeline. It is important to work on your business credit score. A critical analysis will attempt to answer the following questions, is your enterprise profitable? Do customers pay on time? Does your business have a good reputation? This analysis will prepare you to face the commercial lenders.
Prove Your Credit Worthiness
The strategy for this is to demonstrate to the lenders that you as an individual and business are credit worthy. If you are new in the business, you can show previous successes that you may have had in running other businesses. Perhaps you previously owned or managed another profitable business. Lenders will be more open to entrusting their money with you if you demonstrate that you have the experience to run a business, even if it was in a different industry.
Present Credible Financial Statements
You need to bear in mind that credible financial statements are not prepared overnight. They are a result of an effective internal accounting policy. This is supported by an accurate system of bookkeeping and financial reporting. There must also be a committed management team to ensure the execution of these policies. The good thing is that there are tools such as software programs that can help you prepare accurate financial records. Additionally, you can seek help from a financial accounting professional. This expert will check that the systems are operating effectively and capture any errors. He will also give advice where necessary. For this role, you can work with an independent certified public accountant (CPA). Most commercial lenders will be satisfied with financial statements which have been reviewed by a CPA.
Prepare a Concise Business Plan
Your business plan needs to be concise yet complete. It needs to show where your business is currently in terms of goals, tactics, strategies and how a loan will help move it to the next level. The plan should provide projections, forecasts, financial statements and a history of the income. Ensure that all these records are true and up to date. Detail how you expect to use the loan proceeds and how you plan to repay the amount borrowed.
Commercial lending can be very subjective, cast your net wide and submit your application to several lenders to better your chances.