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A Guide to Business Loan Application

At least 99.6 percent of the Philippines’ registered businesses belong to small and medium-sized enterprises (SMEs). They employ more than 70 percent of working Filipinos. However, despite their impressive presence, SMEs constitute only 35 percent of the country’s entire GDP.

There are a variety of reasons why this is so. For instance, SMEs face challenges with their technical capacity, limiting production. If and when they are fortunate enough to access technology that increases production, they face difficulty in penetrating ASEAN regional markets, thus limiting expansion. Lastly, most SMEs lack sufficient funding to reach their full business potential.

For the last concern, the answer is finding viable sources for a business loan. If you are a small business owner or planning to put one up, here’s your guide to business loan application.

1. Determine the kind of loan you need

Business loans come in four categories. There’s a loan for starting a business. There’s a loan for managing day to day expenditures. You can apply for a loan to expand your SME. Or to access funds that will provide your business with a safety net.

If you’re applying for start-up funds, chances are your loan provider options will be more limited. The same goes for when your business is no more than a year old. Meanwhile, businesses that have been operating for more than a year, and with stable cash flow to show for it, can apply for various loan options. Those include term loans, invoice factoring, and government-backed loans, to name a few.

Now do not get disheartened if you need funding for your new business idea. You can always resort to crowdsourcing. Solicit the financial help of your moneyed friends and family members. Also, keep in mind that the limitations we mentioned here are not hard-and-fast rules. You can always defy the odds.

2. Assess your qualifications

You do not want to waste precious time. You do not want to spend days or an entire week physically filing loan applications to various potential lenders only to get one rejection after another. Come to the battle prepared.

By prepared we mean you’ve already spent enough time self-assessing your loan qualifications. Here you need to ask yourself these questions.

  • Do you have a good credit score? — Banks favor loan applicants with good personal banking records. They specifically require a credit score of at least 680. Refer to this link for a guide on how to get your credit report.
  • How old is your business? – The answer to this question will determine the lender options you have. For example, most small online loan providers require that your business is at least a year old.
  • How much money do you make? – If you’re trying to finance your new business but you have a stable source of income, on top of personal savings, from your full-time job, for instance, you might be able to seek funding from small-scale lenders. Here, the important thing is you prove your capacity to pay.

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3. Study available loan providers

As already mentioned, there are many loan providers out there. And you must study each one, concerning their imposed rules. Here are the usual suspects.

  • Banks — Line of credit and term loans are just a couple of loan types you might receive from a traditional bank. However, to qualify for these offers, you need a good credit score and you can provide any type of collateral. Also, getting approved might take a while so if you need cash fast, this might not be the best option for you.
  • Microlenders — You have better chances with microlenders if your business is new. The loan they provide is capped at a certain “micro” amount.
  • Online lenders — This is convenient for those in need of funding ASAP. Requirements are less stringent compared to other loan providers.

4. Prepare documents

The documents you need to gather will depend on the loan provider you’re applying with. Staple documents usually include the following:

  • Business plan
  • Business and personal bank statements
  • Business and personal tax returns
  • Business financial statements
  • Legal documents i.e., franchise agreement

5. File your application

Make sure your documents are neatly organized. You too should look your best because you need to make a good impression.

A business loan application can be time-consuming and stressful. Your patience will be tested. But you should keep at it and not give up. That is even if you face initial rejections. To keep you keeping through, remember that you are doing your entire country a favor. You will be providing work to your fellow Filipinos and that’s quite a noble pursuit, worth all the challenges you might come across.

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