Be Realistic

• Banks and other lending institutions see hundreds of loan applications a day.

• It is up to you to convince the lender that your business is worth investing in.

Plan Ahead

• Apply for a loan way ahead of time. Last-minute applications will make the lender doubt your ability to manage your money.

• Don't rush the lender. The lending institution needs time to evaluate your application. Rushing may weaken your relationship and affect your chances of getting loans.

Understand The Lender

• Entrepreneurs are risk-takers, while lenders are conservative.

• To a lender, a loan is an investment. The lender's job is to protect the bank's or institution's funds by minimising risk.

• Lenders often come into contact with borrowers who are dishonest or who have poor business plans. It is their job to make sure yours is not such a business.

How Lenders View SMEs

• If you are an SME, you should know that lenders worldwide view SMEs as high-risk investments for the following reasons:

• SMEs often have unstable cash flows.
• SMEs have small capital.
• SMEs often do not honestly disclose financial information.

Improve Your Chances Of Success

Be Honest

• Borrowers often make the fundamental mistake of being untruthful about their accounts and financial information.
  
  
• To reduce their taxable income, many sole proprietors and partnerships under-declare income or over-inflate expenses.
  
  
• Borrowers also tend to overstate their revenue projections hoping give lenders the impression that their businesses are healthy.
  
  
• Remember that hiding the truth will make it hard for your banker to feel comfortable with your business. If your lender suspects that you are not being honest, he/she will not give you the loan.
  

Ensure Your Financial Records Are In Order

• Many SMEs neglect to keep their books in order. They may be unable to account for every dollar spent, or they may mix business and personal expenses.
  
  
• This is especially true of SMEs with less than S$5 million revenue, as the law does not require their accounts to be audited.
  
  
• Proper bookkeeping gives the lender a truthful picture of your financial situation. It also shows that your business is stable and professionally run.
  

Manage Your Money Well

• Lenders are always impressed with businesses that manage their money well.
  
  
• Warning bells go off if the lender discovers that you:
   
  • write cheques that bounce
  • have a low bank balance
  • have frequent overdrafts
  • do not make your credit card repayments on time
  • have defaulted on previous loans
  • were sued for non-payment or late payment by suppliers

Borrow The Right Amount

• Every lender will look at your business and see if you have a healthy debt-to-equity ratio. This simply refers to the amount of money you are borrowing compared to the amount you have invested.

• For instance, if you want to borrow S$500,000 and you have only invested S$10,000 cash in your business, your debt-to-equity ratio is 50. If you are a start-up, that ratio will be considered too high. You are effectively asking the lender to bankroll your start-up!

• There is no "ideal" ratio. The ratio will depend on the industry average, the stage of your business and the economic climate.

• Lenders will be more prepared to lend if the loan requested is a fraction of the total equity of the company. Asking for an extra S$10,000 when you have invested S$40,000 is more realistic.

Ask Your Banker For Help

• Always check out the options at your own bank first, especially if you've been their customer for a long time.

• Your banker may be more familiar with your business than other lenders and thus be more willing to extend you a loan, perhaps on better terms.

• Your banker may also be able to suggest other financing options, provide you with some tips on maximising your current funds, or offer you insights into the market you're entering.

• By treating your banker as a business partner, you establish credibility and trust.

Check Your Credit Rating

• The Credit Bureaus give independent, objective credit ratings of all SMEs in Singapore.

• A good credit rating makes it easier for a business to obtain loans.

• The Bureau collects and stores credit-related information about your business - such as who your trading partners are, how prompt you've been in repaying previous loans, and what legal action, if any, has been taken against you.

See:	Using the Credit Bureaus