The first quarter of the year has come and gone in a flash, almost faster than you can say “Pfizer-BioNTech.”

Although some forecasts on the overall economic outlook for the first half of this year have been cautiously hopeful, the business environment remains unsettled.

The owner of a small firm may worry about how to attain immediate business goals, especially if the business is barely getting by.

Why did you not get the loan you applied for? Try looking at it from the bank’s point of view.

Banks ask themselves: How can we make sure we make money by issuing this loan to this person?

Your loan’s approval should be easy to predict if you keep this in mind.

Listed below are the main factors that banks (and relationship managers) take into account before approving or rejecting your business loan application:

The type of loan you’re requesting

A company term loan that is secured and one that is unsecured fall into two types.

Banks can seize a tangible asset as collateral for loans if they default. Therefore, they have the name collaterals (more on that later).

Business term loans without collateral demand a personal guarantee instead. You can seek payment from this person if you’re unable to pay back the loan. In other words, it’s the way a bank defends its interest.

A higher interest rate is likely to be charged by the bank when approving unsecured business term loans due to the significant risk associated with doing so.

The collaterals you have

Unsecured business term loans are only offered by banks when you have something practical to give if you are unable to pay back the money, you will be penalized.

Vehicles, equipment, bills, or residential (non-HDB), commercial, or industrial property are examples of collaterals.

Your company’s and its directors’ creditworthiness

Five types of paperwork are typically required when applying for a bank business term loan.

Among them are the Accounting and Corporate Regulatory Authority’s profile of your company, Credit Bureau Singapore’s latest credit scores for all company directors, your company’s most recent financial statements, your most recent bank statements, and your most recent Notice of Assessments for the company directors from the past two years (NOAs).

This will give the bank a better idea of your company’s credit score. As a result of these materials, your company’s and each director’s debt, as well as financial performance, will be revealed.

How old your business is

If the bank believes there is even the slightest possibility that you will receive repayment of the loan, they are unlikely to approve your application.

Deshalb is your business loan application likely to be rejected if your firm has been in existence for less than a year. In the beginning, there is no proof of profitability.

Banks aren’t interested in your company’s potential; they’re just interested in its past performance.

For a bank to consider your firm for a loan, your business must have been operating for at least a year.

Banks are far less likely to lend money to small businesses directors who owe more than they earn because they are worried about not being able to repay the debt.

The directors’ Balance-to-Income (BTI) ratios

According to the BTI ratio, directors have a debt-to-income ratio of 1 to 1.6.

Individuals are prohibited from borrowing more than 12 times their monthly incomes under this ratio. A person can’t get into too much debt that they can’t pay off.

In conjunction with the CBS reports, the bank will use the NOAs we discussed before to determine the overall debt-to-income ratio, otherwise known as the debt servicing ratio.

As a guideline, banks use the BTI ratio to assess whether or not to offer a loan.

They borrow more than they earn if their BTI is relatively high.

There is a danger that you won’t get a loan if they are personal guarantors.


Published On: September 14th, 2021 / Categories: Uncategorized /