5 steps to getting a bank loan for entrepreneurs

Young Asian businesswoman working with her computer at home trying to get a bank loan for entrepreneur

Are you an entrepreneur seeking business loans or working capital loans? Whether you are planning to develop a new business, innovate new products, create processes, or globally expand your business, having access to substantial financing is crucial for every business owner. In this article, we cover steps on how you can secure a bank loan for entrepreneurs.

How proper preparation before applying for a loan makes all the difference

Capital is one of the core things that any business must have in order to smoothly run its operations. Many of us have great ideas that when implemented can lead to the creation of new business empires. However, the only obstacle that stands between the ideas and launching of the business is a lack of capital.

Before we list out the steps to secure a bank loan for entrepreneurs, you need to first take a look at potential government grants for working capital loans or business loans that are available out there.

In Singapore, there are government-assisted scheme options such as the Enterprise Financing Scheme (EFS) which covers six focus areas that will enable Singapore enterprises to access financing more readily throughout their various stages of growth:

SME Working Capital Loans Finance daily operational cash flow needs.
SME Fixed Assets Loan Finance the investment of domestic and overseas fixed assets.
Venture Debt Loan Finance the growth of innovative enterprises using Venture Debt and Warrants.
Trade Loan Finance trade needs.
Project Loan Finance the fulfillment of secured overseas projects.
Mergers & Acquisitions Loan Finance the acquisition of target enterprises with the intent of internationalisation.

Man stepping on stack of coins, representing the success of getting a bank loan for entrepreneurs

What are the steps to ensure you get the best loan for your business?

1. Have a proper business plan

A succinct and robust business plan is crucial in ensuring that the specific bank loan for entrepreneurs such as yourself will be considered and approved. You have to ensure that you consider all elements of running a business when writing a business plan, including resources for manpower and how much value you are bringing to the table in terms of potential revenue per year.

2. Research on calculations

You should include the amount needed in the business plan as well as detailed plans on how you would spend the funds once granted. The interest rate will also play a huge role in your monthly cash flow which affects the operations. Effective interest rates (EIR) in bank loans differs and vary according to your business

The EIR can be calculated with this formula:

1 + (simple interest rate / number of compounding periods) ^ (number of compounding periods) – 1

You should also learn how to calculate your potential monthly installment using the installment formula: [P x R x (1+R)^N]/[(1+R)^N-1]

In this formula, P is the principal, R is the interest rate per month and N is the number of monthly instalments.

You can also calculate the total interest to pay over the duration of the loan using this formula:

(Monthly instalment x number of monthly instalments) – loan amount

3. Work on cleaning up your credit report and credit score

Credit scores are really important factors that banks look out for before granting you a business loan. You should first understand your credit score and credit report to have a gauge of your creditworthiness. Your credit score is a four-digit number used by money lenders and banks as an indicator of the likelihood of you repaying your debt. The higher your credit score, the higher the loan amount that you may be eligible for.

4. Assess all your lending options

It’s best to keep your options open when it comes to enquiring about business loans and grants. Have a list of potential banks that is constantly updated. Enquire from various banks and financial institutes on any promotional offers on flexible plans that can suit your business needs.

5. Keep proper financial records

It’s imperative that you document all financial records personally as well as operationally in your business. Creditworthiness is very important to ensure that you can commit to paying back the loan.

Alternative options

If you’ve done all of the above but yet could not secure a bank loan, consider relying on licensed money lenders. There are reputable ones that grant business loans with significantly higher principal amounts, such as Dio Credit which provides loans to entrepreneurs of up to $150,000.

Whether you are looking to stabilise, rebuild or execute a business project from scratch, they are able to tailor a business loan plan to your needs and ensure that your operations run smoothly with the least amount of collateral.

Disclaimer

While all reasonable efforts are made to include accurate and up-to-date information on this website, errors or omissions may still occur. We are not liable for any loss or damage caused by the use of this website. The information on this website is for general information only and should not be taken as professional advice.

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