Business Capital Loans: Yes vs. No.
When you want to start a business, of course you need to do simple research to compare several alternative business capital. If you already have sufficient capital, then you can move on to the next stage, namely planning and analyzing business feasibility. But what about the majority of business people who lack funds to start a business? The most common answer that immediately comes to mind is BUSINESS CAPITAL LOAN.
But many also applied for loans without careful consideration beforehand, and in the end became regrets. Loans require a large commitment, especially if the tenor is long. You can’t just stop in the middle because all loan terms are set under the applicable law.
Therefore, it is important to ask yourself about your loan needs and your readiness to live them. Through the following article, Red Cross Knight will invite you to look at some of the things you need to consider before applying for a business capital loan.
1 Check your qualifications for loan terms
When you want to apply for credit, you need to know the qualifications and terms that are the conditions for submission. For example, if you want to apply for KTA, pay attention to the conditions given before submitting it. Actually what are the conditions that generally arise in a loan? As an illustration, please see the terms of KTA Bank Mandiri as follows:
You can see Bank requirements starting from citizenship status, age, to the minimum amount of income set. If from the beginning you feel you don’t meet the requirements, don’t force to apply for the loan. Why?
According to David Gass, business consultant and CEO of Anderson Business Advisors:
“If your loan application is rejected, it will be difficult for you to borrow again later. Once you are rejected, it will appear that you are a risky customer for other loan providers. “
Therefore, it is wise to always check the terms and conditions and see your financial capabilities before applying for a loan
Knowing the Amount of Loans Needed
Before applying for a loan, calculate exactly how much money you need. The easiest way to calculate it is to make periodic cash flow projections. Thus, it will appear that there is a lack of funds needed.
You can roughly determine the amount of funds needed, but it will look ridiculous when the bank asks for a cash flow projection and turns out you need a number that is far different from the submission. Adam Hoeksema, co- founder of Muncie, Ind. -Based ProjectionHub stated that, “You have to understand how much funding needs and what is the purpose of borrowing these funds before visiting the bank.”
3 Check Equity Loans and Collateral
In addition to Unsecured Credit , there are other types of loans, namely Multi-purpose Loans or collateral loans. Why choose credit with collateral if you can apply for KTA? The answer is: a larger number of loans with lower interest rates. For those of you who need big capital and have valuable assets that can be used as collateral, Multi-Purpose Loans are a far more attractive alternative.
But because of the smaller interest rates, banks need a guarantee to anticipate bad credit, namely by guaranteeing valuable assets. Now, you try to think in your heart, is it natural for someone to submit a guarantee in the form of a house worth Rp500 million for a loan of Rp1 billion? Of course for ordinary people it does not make sense.
The bank will always check the valuable assets that are used as collateral, estimate its value, then the bank can determine the amount of loans allowed. Then, can you propose assets worth IDR 1 billion for a loan of IDR 1 billion? Not really, because banks generally determine the loan size to only reach tens of percent (generally 60% to 70%) of collateral value. The point is, always consider
whether the loan amount is commensurate with the valuable assets to be pledged.
4 Checking the Ability to Pay Installments
When you apply for a loan, the bank will check your financial capabilities. Usually by doing BI checking to check the credit history, and also checking the debt ratio (debt ratio). If you fulfill the conditions, then the bank will ask for a projection of the feasibility of the business to be carried out.
For example, if in the projection, the ROI or payback period is not feasible, then you will only close the possibility of loan approval. Projection of a feasible and feasible business with a small error rate will increase the likelihood of your loan agreement.
5 Borrow to Return
If you apply for a business capital loan but use it to pay for machine repairs, you make a big mistake. The name is a loan, it must be returned. Therefore, you need to allocate a loan to the part of the business that produces it. In other words, use a loan in a part that can be increased, so as to increase revenue.
The aim is to develop the business. If I can change 1 dollar to 5 dollars with the loan, then it is worth it.
6 Check Your Business Credit History
As previously stated, banks always check your credit history before deciding to give a loan. Many business people know their personal credit history, but forget their business credit history. Even though it’s important you know your business’s credit history.
If you find that your business’s credit history is bad, then try to fix it in the following ways:
- Reducing the balance of a business credit card
- Make sure the vendor reports your payment
Finally, make sure you avoid late pay or delays to vendors. Because even though your credit history is very good, if a lot of vendor experience is not good for you, it will be difficult to get a loan.
7 Has Good Management of Personal Finance
It’s useless you have a successful and big business, if your personal finances are a mess. Some banks often make personal credit history a benchmark for loan agreement. For example, your home installments and tuition fees will be checked. In addition, the use of personal credit cards. What is this personal checking for? The bank measures your eligibility in running a business, to see whether there is a potential for bad credit.
8 Checking Completeness of Documents for Submitting Loans
“A study proves that 4 out of 5 loans are not approved not because the business aspect is not good, but because of weaknesses in the documentation section.”
It is true, in applying for credit it takes documents that are not small. Arora added,
“If you come to the bank and apply for a loan with incomplete or expired documents, you will look very unprofessional.”
Thus, always prepare the complete data needed. For example, the following are general files that are requested when submitting KTA:
If you apply for other types of loans, make sure you have prepared the latest and most complete documents needed.
9 Check the Existence of Speedy Repayment Fines
For you as a borrower (debtor) of course there is a desire to be able to pay off the loan quickly. But don’t be careless, you need to read each of the terms and conditions in your credit contract before deciding when to pay off the loan. At the beginning of the loan proposal you should choose a feasible tenor, but no one knows whether your business suddenly shot up success right?
If you then want to pay off the credit before maturity, make sure the penalty is paid to the creditor. What are the fees and accelerated repayment fines? How much is the value? If it’s worth the repayment faster, then why not? Unfortunately, most lenders give a large amount of fines and an accelerated repayment administration fee. So consider returning and calculating carefully before you pay off the debt before maturity.
10 Check the existence of life insurance in credit
Questions that are rarely considered by debtors are,
“If I die, who will continue the business and pay the business capital installments?”
Of course, you don’t want to burden family members or relatives if you die. Unfortunately, if you die, the credit must still be repaid, EXCEPT IF : You buy life insurance that covers the case.
Indeed, death is a thing that cannot be predicted, but that does not mean you do not prepare for anticipation. Try asking your insurance agent for this and upgrading the policy if needed. Don’t let your family bear a big burden after you are gone.