Business loans are of great help to finance short and long-term business needs. However, getting a “green flag” for a loan application is quite challenging.
Every business, small or medium-sized, faces problems due to inadequate funds.Here are 5 financial practices that can help you to get a business loan faster:
1.Manage cash flow
A healthy cash flow indicates the liquidity in your business. In case you don’t have a stable cash flow, then lenders may reject your business loan application.
Cash flow also affects the debt service coverage ratio (DSCR). It defines whether or not your company is capable of paying its debt and timely interest payments.
As per the Corporate Finance Institute, an ideal debt service coverage ratio must be 2 or above. A ratio of less than 1 is not acceptable as it indicates that the company has not enough funds to pay its current debt.
To maintain DSCR, improve your cash flow and increase the chances of business loan approval.
Some of the ways to improve cash flow are:
- Clear all payments timely
- Ignore unnecessary expenses
- Pay invoices in the name of your business
- Find other income sources
- Plan an effective budget
Lenders mainly lend loans to borrowers who follow an effective approach to pay their bills or debt on time.
On-time payments indicate the stability and performance of your business and also make you a good applicant for a business loan.
Also, clearing all your payments improves your credit score and boosts your odds of getting a business loan faster.
In order to approve your loan, outline a proper plan regarding its repayment.Pro tip: Use the EMI calculator to plan the repayment effectively.
3.Build a strong business structure
Business is both a social and economic entity. As a business owner, you need to plan an effective structure to carry out all the socio-economic expenses.
Any lender before approving your business loan application looks at your business structure.
Having a strong business structure can clear all blockades to funds and can easily convince your lenders.
4. Improve credit score
Lenders often view your credit rating to analyze the financial situation of your business. Your credit report helps them to decide whether your business is eligible to get a loan or not.Some of the tips to improve your credit score are:
- Make payments on time
- Maintain a total credit utilization ratio below or equal to 30%
- Review your credit report regularly
5. Keep the relevant documents
Having all the important documents ready fasten up the process of business loan approval and also reflects on your credibility as a borrower.Some of the relevant documents to get a business loan are:
- Address and identity proof
- Bank statement
- Credit card report
- Business and personal details
- Continuation proof
In addition to the above, there are many more important documents needed to get a loan.Final words
Following the above tips will help you improve your financial condition and will boost your chances of getting a business loan faster.