Good or bad credit score, with or without collateral, these seven important requirements will improve your chances for a small business loan approval.

Entrepreneurs, especially small-business owners deserve all the support they can get, particularly in relatively challenging economies like Nigeria, where the risks of running a business can be as daunting as climbing Mt. Kilimanjaro in rainy season.

…paradoxically, like orphans, they are often last on the rung.

Loans can be a great resource to leapfrog small businesses to the next stage, where it can favorably compete and meet the requirements that limit reach and sales aspiration. One common mistake small business owners make is that they neither diagnose their business at the early stage of the planning cycle nor make the loan request early enough to ensure they can find alternatives in due time. So, should you get that disappointing feedback that your loan offer was turned down, do not give up on your growth plans. All you need to check is your eligibility for a loan… the right loan from the right institution.

…but do you truly qualify for a loan, why not do a self-assessment ?

You need to always self-diagnose your finance and be sure of your status, not just about your ability to take a loan but about everything around your finance. Like health issues, it is often cheaper and easier to manage a problem when it is recognized early. So, whilst noting the different peculiarities of varying small businesses, do a quick review of these seven basic requirements for a small business loan. Hopefully, it serves as a simple guide to check your status.

Click here to see a list of small business loans and their interest rates.

Revenue: The focus of a lender is cashflow, as it is the main source of repayment for a loan. So, if your business currently generates revenue, it is likely that a lender will grant you a loan, and the question you would need to ask yourself is how much loan you can access with your current or future cashflow. If your business does not generate revenue now, will you be able to demonstrate that it will generate revenue over the payback period of the loan, either because the use of the loan will stimulate revenue generation, or there are other reliable sources of cashflow to pay back the loan? What is important is that you must be able to convincingly show the lender how you will pay back the loan. 

 Whilst revenue is often used as a proxy for assessing your cashflow, it is not the only factor that determines the size of the loan you can access, especially as the lender focuses on “free” cashflow, which is simply the cash that would be available to service the loan at different times, after taking care of the critical expenses that you need to sustain the operations of the business.
 If the bulk of your revenue is derived from selling your products on credit, you may have to ensure that you show that you can always recover the cash from the credit sales, as lenders are more interested in the cashflow from sales and not the sales itself. Also, if you think you need more loan than the free cashflow of the business can get, you must be prepared to present other sources of cashflow which you will use to complement the cashflow from the business in meeting the loan service requirement.

Check Credit Score: This is about the lender’s perception of your character. Whilst there are no hard and fast rules to this fundamental requirement, a common practice (which is not necessarily right) is to think that big corporates and “renowned” individuals will less likely default.