85% of Business Loan Applications Get Rejected Because They Miss These 5 Things

If you are reading this, you probably own a SME and have clicked on this post as you are currently searching for more business funds to manage or expand your business growth.

There are so many ways to seek business funds in Singapore, be it from the government (such as SPRING Micro Loan), from traditional Banks, or even from Alternative Financing platforms, which has recently been a hot-favourite option among local SMEs due to the stringent criteria from the banks which isn’t in the favour of SMEs. 

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For most of you who fall in this category, finding the right financing solution for your business’s needs and capabilities is not easy, since almost close to 85% SMEs who have applied for business loans from banks have been rejected. But having said that, it is not impossible.

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You just need to know how. No matter which financing platform you ultimately seek funds from, you need to know how to ‘sell’ your business to get your loan application approved.

Here are 5 essential and crucial things that the credit officers are looking for in your business application loan:

1. General Business Information

The most basic set of information that all application loans must have is a thorough introduction to your business, the people managing your business, and your financing needs. Most people overlook this basic component, thinking that it is the least important.

However, the more the credit officer knows about your company, the more they are willing to approve your loan.

  • Business description: Business name, Business Certificate / License, Business ACRA Registration number, names of Business Owners, Business Address, history and nature of the Business, its age, number of employees and current Business assets.
  • Ownership structure: Details on company’s legal structure
  • Management profile: Profile of Business Owners (background, education, experience, skills, accomplishments, resume for reference)
  • Purpose of the loan: Reason for loan and what it will be used for
  • Amount required: Amount needed to achieve your purpose

Tip:

While elaborating on the purpose of the loan, honesty is important, but do it in a professional manner which will make you stand out as credible rather than desperate. After all, lenders are looking for good paymasters and not desperate borrowers.

2. Business Credit Report

A business’s creditworthiness is based on the number of trade experiences, credits and assets they have. If your business does not have any, you should consider making some trade credit purchases in order to establish a credit history for your business.

By obtaining a credit report for your business (or even for yourself), you get comprehensive credit risk information such as:

  • Basic Company Registration Information
  • Litigation Searches
  • Financial Reports
  • Payment Details
  • Consumer Credit Reports

You can get your Business Credit Report from Dun & Bradstreet  or Experian just to name a few.

Tip:

Obtain a business credit report before applying for loans. This is so that if you discover any information inaccuracies, you can adjust them before it affects the status of your loan application.

3. Business Financial Information

This is by far the most important set of information that you would need to prepare. At a glance, it shows the health of a company.

Most loan applicants got rejected as their information is not comprehensive enough. It should include the following:

  • Balance sheets and income statements for the past three years

- Revenue / Sales / Gross Profit / Losses
- Current and past loans and debts incurred
- Income tax returns

  • All bank accounts, investment accounts, credit card accounts information

If you are a SME which just started business, you could provide a projected balance sheet and income statement instead. Usually, statements required go back at least three years, but if you don’t have sufficient history, yet have good credit and assets to pledge as collaterals, some exceptions can be made sometimes, depending on the Credit Officer.

Tip:

Financial statements that are audited or reviewed are usually preferred. Audited statements would cost much more as it will require a CPA (Certified Public Accountant) to analyze your business, and to take formal responsibility for their accuracy. The bigger your business, the more likely audited statements are necessary.

4. Personal Financial Information

Quite similar to the previous pointer, Balance sheets and Income Statements of all business owners’ must be accounted for. In short, it includes:

  • Notice of Assessments (NOA)
  • All Income statements
  • All expenses (wages paid, utilities, rental fees etc)

5. Pledged Collateral/s as security

Assets such as properties, invoices, inventories or shares pledged as collaterals for unsecured loans is a crucial deciding component for credit officers when they approve or reject your loan application.

By pledging your collaterals, you are securing your loan and if you fail to repay your loans, your collaterals will be seized by the lenders. As such, risks seem minimized, so the more collateral pledged, the more capable you are to repay, thus higher chances of being approved.

However, do note that the value of the collaterals will usually be discounted such that they are not accepting 100 percent of the collateral's highest market value.

For properties: Usually accepted up to 75% of appraised value

For stocks and bonds: Usually accepted up to 75% of appraised value

For Invoices: Usually accepted from 30-60% of appraised value, depending on the age of the invoice. The older the invoice, the lesser value it holds.

For Inventories: Usually accepted up to 75% of appraised value

Tip:

Check with your real-estate agent for the most accurate valuation of your property, or the numbers from bank account and brokerage accounts, so that you do not under-report or over-report the up-to-date value of your collaterals.