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admin
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September 12, 2024
Have you hit the stage where you want to grow your business? Expansion of your business means additional funds. Chances are your business does not have enough funds to fall back on. Small business loans in Belgium are an alternative to help fund your needs, but they are not easy to qualify for.
Bear in mind you must have a good credit rating and stable profits to get the nod from your lender. Well, there are a lot of other factors that come into play when it comes to having a lender sign off on your business loan application.
It should not come as a shock if your business loan application is turned down despite a good credit score. Sometimes, your business might be able to prove stable in profits, but you are refused a loan.
The approval process for business loans is not the same as that for personal loans. There are a lot of formalities that you need to fulfil in order to get approval.
Challenges that can get in your way of getting approved for a business loan
Here are the challenges that can get in your way of getting approval for a business loan:
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Limited cash flow
Your profitability is one factor, but lenders will be paying heed to the status of your cash flow too. Payments are to be made every month in fixed instalments. Lenders would check if you have enough money to keep up with payments despite compromising on your business operations. If they suspect a limited cash flow, you will certainly end up being refused.
Before applying for a loan in the first place, you should try to ensure that your cash flow is good. Focus on ways to improve it. For instance, you can reduce your invoice payment cycle and impose a penalty on late payments.
If you have good relations with your creditors, negotiate with them, not just on the prices of materials but on payment terms too.
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Too much debt
A lender will examine the total amount of debt you owe. Despite the fact that you have been managing to repay your existing debts, you will struggle to get approval for a business loan. This is because your lender will doubt your repaying capacity. They may think that you cannot manage all debts together, and there is a chance that you will fall behind on payments.
Too much debt also indicates that your business mostly relies on loans to meet its expenses. It will work against you. Lenders will doubt your credibility and raise questions about your managing money. It becomes a serious concern if you have been running a business for a short period of time.
To tackle your debt problem, you should try to settle them as fast as possible. An ideal debt-to-income ratio is 30%, so make sure you keep it less than this. Do not borrow if you already owe too much money. A lender will certainly call your affordability into question. You will have a very bleak chance of getting approval when you are already in too much debt.
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Your business project does not seem to be propitious
Getting approval for a loan is even harder for a start-up. You will need to meet additional conditions, such as the submission of a business plan. A lender would like to know the following through your business plan:
- How much money do you want to borrow?
- What you will do with the money
- How you make profits out of it
- Why do you think this is helpful to bring business?
- How will you repay the debt if you fail to do so?
A business plan must be in detail and precisely mentioned so your lender can gain insight into how likely it will be successful. It is likely that your lender does not find your business vision worth profitable. It might be a shot in the dark and if that turns out to be reality you will certainly end up struggling with payments. No lender would ever lend money to someone whose business project does not seem to be profitable.
If you want to borrow money in Belgium from lenders, you should ensure that your business plan does not have any flaws and that your business project is worth investing in.
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Poor customer base
Your sales graph will go up if you have a large customer base. You should be able to acquire as many new customers and retain existing customers as possible. A lender cannot make a decision based on your current financial circumstances. They will take account of projected profitability. Because the business world is full of surprising turn of events, there is never a surety that your business will keep picking up even in years to come.
Your lender will check your previous track of sales. They will be hesitant to lend you money if they find that your customer base is not large. A poor marketing strategy can be a poor reason for a small customer base. This is not appreciated, especially if you have an established business. If you are a start-up, you should be able to demonstrate how your customers keep growing. Do not expect that you will get approval for an affordable deal if your sales graph is not satisfactory.
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A bad credit report
Your credit rating must be stellar to apply for a business loan. If you do not have a business credit history, your personal credit report will be taken into account. Keep it in good condition so you are not turned down because of your poor credit report.
To sum up
It is quite challenging to get a small business loan. There are a lot of conditions. Just a good credit rating and strong income sources are not the only two conditions that you need to meet. A lender will carefully evaluate your cash flow, the amount of debt you owe, and the business project for which you are borrowing money.
