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How to prepare for a business loan

Running your own business is hard work. Meeting your business goals is harder. The right funding at the right time can make a real difference, but how do you know which loan is right for you?

5 mins read

Takeaways from this article

You should start any business loan search with your own business objectives and goals. Plan for success.
There are more options than just bank loans and credit cards when it comes to business funding.
Do your research and compare like for like to get the right funding option for your business.

Running your own business isn’t just about the freedom of being your own boss, it’s about doing something you love, leaving an impact in the industry, and enjoying a strong sense of achievement every day. But sometimes to meet your goals, you need a helping hand in the form of some cold, hard cash.

If you’re considering applying for funding for your business, it’s important to know what you’re getting into. So let’s get started.

1

Determine your need

Before you start, make sure you’re clear on what your objectives are – why you need the funding and how you’re going to prove to yourself it was worth the time and cost. It may be that your website needs a revamp, that you need temporary support from freelancers, that clients are paying invoices late and you need a boost to your cashflow, or that you plan to expand and open a new outlet or restaurant. Whatever you need the funding for – make sure you have a plan to use it right.

At this stage you should also be identifying how much you need, how soon you need it, and how much you can afford to repay each week or month. Don’t forget to consider any seasonal ups and downs your business might face – perhaps caused by public holidays or celebrations.

2

Know your options

New forms of business funding and loans are appearing all the time so your first step is to work out what kind of loan would suit your business best. That’ll depend on things like what you need the funds for, how soon you need them, what your appetite for risk is, what kind of business you do, how well your business is already performing and how long you’ve been in business.

The most common forms of funding right now are:

Bank loans. These generally have pretty good interest rates but applying is a long, difficult process and it can take a long time to get the money. There’s also often collateral requirements – guarantees the banks need in case you don’t repay the loan, like ownership of your inventory.

Business credit cards. While convenient and often accompanied by reward points or cashback options, credit cards tend to generate much higher interest rates and fees. They’re also easy to misuse, causing bookkeeping problems down the track as you sort out the business expenses from personal ones.

Lines of credit. Lines of credit operate in a similar fashion to credit cards but they don’t have the physical card so you’re less likely to get into trouble. Instead, you draw down to your bank account when you need funds, up to a pre-approved limit. They’re not quite as convenient as credit cards but they offer less risk and chance of misuse.

• Working capital loans. Working capital loans are provided by alternate lenders, like GrabFinance. They’re like bank loans, but they tend to be easier to apply for and are approved much faster so you can get the funds sooner. They’re also usually open to businesses that don’t meet the eligibility requirements of traditional bank loans.

• Balance sheet loans. Balance sheet lenders offer quick access to short-term funding requirements. Instead of looking at your credit scores, they care more about your business revenue and sales as you make repayments from each of your future sales. Because repayment is sale-dependent, these loans are generally kinder to your cashflow, but that benefit is offset by high fees.

Peer-to-peer loans. Peer-to-peer lenders match you with people or companies looking to invest in small businesses. They’re common lending options for startups and are growing in demand. Fees and interest rates are usually tailored to the risk to the lender and, because they’re managed by a middleman lender, there’s a commission involved.

Invoice financing. Invoice financing is a form of peer-to-peer loans where an invoice you issue is bought from you at a discount. It lets you skip the wait for your client to pay you and access the money you’ve earned right away. In most cases, you’ll receive between 80-90% of your invoice right away, then the balance, minus the lender’s fees, when the invoice is paid by the client. Fees are typically determined by your invoice payment terms – the invoice due date.

3

Do your research

Once you’ve determined the kind of funding you need, start doing your research. Look for reputable lenders and check their requirements to make sure your business is eligible. Here they’ll generally be looking at how long you’ve been in business, what type of business you’re operating, the industry you’re in, how big your business is (how many staff you have – and less is usually more in lending), and your revenue.

Check their loan terms and pay particular attention to:

  • How much they’ll lend you
  • When and how you’ll receive the money
  • Interest rates
  • The total loan cost
  • Other fees (like late fees or early repayment fees)
  • How long you’ll be making repayments
  • How you’ll make repayments​

4

Compare like for like

With so many different funding options and lenders, choosing a loan can be like comparing apples with oranges. Create a spreadsheet with all your research to drill down to the details that matter. Make your final decision on a combination of factors like total cost, reputation of the lender, and how soon you’ll receive the funding and be able to start seeing the results of your efforts.

5

Prepare your documents

This step seems obvious but if you’re not prepared it can really slow down your application time and delay your receipt of the funds. You’ll usually need to provide your chosen lender a copy of your:

  • Identification card or passport
  • Business registration documents
  • Recent financial statements
  • Contact and personal information about your director or head of operations

And if you’re applying for a loan to help you expand to a new store or premises, you’ll also need some supporting documents for that.

If you’re ready to kick off your research, start with GrabFinance’s Business Loan and Merchant Credit Line.They’re flexible, affordable funding options with fast access to funds.

This information is provided for informational purposes only. It does not constitute legal, financial or business advice.

Check out our loan to suit your business needs

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Business Loan

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Up to
S$100,000
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Merchant Credit Line

Get funding when you need it with a flexible, pre-approved line of credit.

Up to
S$100,000
Over
12 months
For
Purchasing inventory and meeting other short-term needs

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Komsan Chiyadis

GrabFood delivery-partner, Thailand

Komsan Chiyadis

GrabFood delivery-partner, Thailand

COVID-19 has dealt an unprecedented blow to the tourism industry, affecting the livelihoods of millions of workers. One of them was Komsan, an assistant chef in a luxury hotel based in the Srinakarin area.

As the number of tourists at the hotel plunged, he decided to sign up as a GrabFood delivery-partner to earn an alternative income. Soon after, the hotel ceased operations.

Komsan has viewed this change through an optimistic lens, calling it the perfect opportunity for him to embark on a fresh journey after his previous job. Aside from GrabFood deliveries, he now also picks up GrabExpress jobs. It can get tiring, having to shuttle between different locations, but Komsan finds it exciting. And mostly, he’s glad to get his income back on track.