As a freelancer or solopreneur, you know how crucial capital is—not just for getting your business started, but to keep it going and growing.
Capital can come from different places: maybe you saved up from a previous job before going solo, or your favorite Ninang gave you some start-up money for your birthday. Or maybe you’ve already been in business for yourself for some time, and set part of your earnings aside for running your online shop, let’s say.
But wherever your capital comes from, the time may come when you’re going to need more than what your savings, your Ninang or your earnings can cover, especially if you want your business to grow.
That’s why many business owners turn to banks to take out a loan. But if you’re thinking about applying for a loan at a bank, you should know that the application process isn’t as straightforward as it may seem at first.
How can I make sure my loan application gets approved?
While we have no real control over whether or not a bank approves our loan, there are things we can do to boost our chances of getting approved.
1. Choose your bank. 1. Make a careful comparison of the banks that offer business loans and find out what their interest rates and payment schemes are. You’ll want to choose a bank according to your own ability to pay the loan back.
It’s usually a good idea to apply for a loan at your own bank, because the bank already has a general idea of the way you transact, and will be more likely to approve your loan, faster. If you have a good track record at your bank, chances are they’ll be the ones to offer a loan to you.
2. Choose your loan. There are many different kinds of loans you can get from a bank depending on how much you want to borrow, the kind of business you have, what you’re using the loan for, or how you’re paying it back. You’ll want to ask the bank about the loans they offer and choose the one that suits your needs best.
You might want to consider loans with easier payment schemes or lower interest rates. There are short-term loans that are payable within a year, medium-term loans payable within 1 to 3 years, and long-term loans which are payable within 3 years or more.
These loans usually come in packages for the following purposes:
- Home Loan
- Automobile Loan
- Business Financing Loan
- Personal Loan
These packages come with their own payment schemes and interest rates that vary between banks, but they can also be customizable, so you’ll want to talk to the loan officer at the bank to work out the best deal possible.
Though home, automobile and personal loans may not seem to be related to your business, they might come in handy if you’d like to acquire assets for your business. Just bear in mind while that home and auto loans tend to be larger than personal loans, they will take some time to pay back.
Take note: The bank is going to ask you for collateral, especially if you’re borrowing a big amount, and if you aren’t able to repay your loan, the bank is going to take your collateral as payment.
Prepare the requirements. Every bank will have its own set of requirements which typically includes an application form asking how you plan on paying for your loan. Be honest and clear when you fill these forms in, because banks do conduct credit investigations, especially for first-time borrowers.
Other things banks usually ask for include:
- 1 x 1″ and 2 x 2″ photos of yourself
- At least 3 Government Issued ID’s such as your SSS, GSIS, Driver’s License, Voter’s ID or Passport
- Your latest ITR or Income Tax Return
- Your business’s audited financial statement for the last 3 years
- The DTI or BIR permit of your business
Some banks only give loans to businesses that have been operating for three years, while other banks just ask for your ITR. The amount they lend you in the end will depend on their assessment of the documents you submit, but you may be able to negotiate a higher amount if you think you can manage the payments.
3. Disclose your financial information. Banks will ask you about your source of income, and they will blacklist you if they find out you were dishonest in your answers.
4. Credit investigations and research into your past financial transactions are a standard part of a bank’s asssessment of a loan applicant. Banks tend to find everything out about your financial track record even if you leave something out while filling in in your application form, and will confirm their findings with you during an interview.
5. Find a guarantor for your loan. If the loan you want to get is especially large, the bank is going to ask you for a guarantee in case you aren’t able to pay the loan back. A guarantee might be collateral such as a mortgaged property, while a guarantor is someone the bank can approach for payment of your loan, instead of you.
A guarantor might be a friend, family member or your boss, but always make sure you have their permission and that they understand what it means to guarantee your loan before you name them as your guarantor to the bank.
The good news is once you are able to take out a loan and make the payments for it on time, applying for another loan will be much easier.
Do you need help preparing the requirements for a bank loan? Ask an accountant from one of our Partner Firms, today.