How to Grab a Loan ?

When the business is out there and waiting for your prompt action, paper pushing might not seem the most joyous of tasks. But it is vital when an entrepreneur applies for a loan - whether for short-term working capital or long-term funding. However, if you are prudent, ensure that the first step is to get your company's legal and financial paperwork in order for three years running. For the new kids on the block, a strong and detailed business plan with liquid collateral will speed up the money flow into your business account. Strong business plan: In order for entrepreneurs to successfully access bank finance, it is critical that they have a robust business plan, advised Ehsaan Uddin Ahmed, Global Transactions Services and SME head (Corporate Banking Group) at Noor Islamic Bank. "Highlighting financial performance for revenues and expenses over a three to five year horizon, along with detailed explanation of underlying drivers for business growth and operating model will be particularly useful to justify the need for seeking short-term working capital or long-term funding" he said. Liquidity of collateral: For any financing extended, the lending institution will need to consider security offered by the entrepreneur to ensure repayment. "The type of collateral that a young business is willing to offer to the bank will not only have a bearing on the amount of credit line that can be extended, but also have an impact on the rate at which the facility will be provided," said Ahmed. Typically, the entrepreneur will have better negotiating position based on the liquidity of the collateral, he added. "The lender will note how easily it can be converted to cash to settle any facility amount outstanding - cash margins will be considered far more liquid versus a mortgage on a plot of land," he said. Anticipate issues: Existing companies must have their three year audited balance sheets in place. But if you are a new company, when making your business plan, do also factor extraordinary situations such as trade embargoes, natural disasters and war when applying for a loan said Mehul Dave, chief marketing manager, GCC Operations at Bank of Baroda. "It is better to get a higher loan than complain when disaster changes the course of your business plans," he said. "Despite your endless optimism, remember you have to convince the skeptical lender that you are capable of producing results and meeting payments should business fail." Prepare your business plan with projected cash flows and profitability but ensure that it is realistic, added Binod Shankar, managing director at Genesis Institute, a financial training company that specializes in corporate training. "This will also clarify your own thinking," he said.

Prepare net worth documents: Documentation, collateral and mortgage are very important to show how the loan can be repaid on time. "The entrepreneur should also submit his net worth documents in terms of fixed assets, capital and equity invested into the business. For someone who is starting from scratch, the net worth will prove the entrepreneurs capability to handle unforeseen processes during the course of the business cycle," said Dave. "It also helps if you can get personal guarantees of directors, partners or sole proprietor. The bank will usually lend 75 percent and expect the entrepreneur to invest 25 percent in terms of participation - this also ensures that the latters' interest remains intact in the business." Priority sector lending: Most governments earmark certain sectors as priority sectors and offer them subsidies in each country, said Manish Kanthalia, CIO at a leading UAE business house. "Check if your borrowing needs come within those sectors. Do also check with your local trade institutions and government organizations on borrowing possibilities. Do also look at value addition for your business by looking at a model where your business becomes more profitable and sustainable - say setting up a processing unit when you are a trader. This makes you more viable as a business to lend to," he said. Hire the expert: Processes are laid down by each institution. If you are not good at doing such work as an entrepreneur, do not shy away from hiring a consultant to prepare the documentation, said Kanthalia. "Certain individuals might offer contacts and informal assistance. But when banks ask you for a feasibility study, you need to get it done by a credible institution or by people with experience." Get the specialists.