The SME Loan provides a single line of credit for meeting the borrowing needs of SME. It can be used as a working capital as well as for long-term requirements. It is approved after considering the nature of business, cyclical trends, cash flow projections, and peak time requirements.
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Working Capital Loan
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Determine how much money you need for your business?
This is the most relevant question you need to ask yourself, because if you ask for too much, lenders will question how you can pay, but if you do not ask for enough, you will face fund issues very soon. To determine your business need, you are encouraged to create a detailed costs projection for the use of borrowed funds.
You should also prepare financial projections, including profit & loss and cash flow statements to estimate the revenue you can generate. Having prepared all these reports will help you determine the amount of money that you need, and it will also show lenders that you are responsible and informed.
The costs of your business loan?
It is common that there may be processing fee and/or legal costs involved depending on the loan type. You will want to know what the upfront charges, interests, early settlement, or other fees that e you need to pay before you commit and sign the letter of acceptance/loan agreement.
Knowing the total costs of a loan can help you decide about the type of loan to select and amount of financing that you should pursue.
How much can your business afford?
It is paramount to ensure you can promptly pay your lender on a timely basis. Lenders will want to know how much available cash your business can generate to make debt payments. You can use your cash flow report to calculate the debt servicing coverage ratio (DSCR); ie derived the money left to make debt payments after paying all the expenses.
The impact of your loan on your projections?
You may want to know how the cash from your loan can change your future earnings projections. Doing some calculations will help you determine the optimal amount to borrow. For instance, how much profit you can expect to make by taking out a loan after deducting the costs for the loan.
Future financing needs.
It will depend on your business plan if it will require more funds for future expansion. If yes, taking out smaller loan now and repaying it promptly will help you build your credit and help you secure a larger loan in the future. Moreover, if you borrow too much now, it may get in your way to secure financing later.
Therefore, it is important to plan and make informed decisions about financing your business now, and into the future.