Obtaining a loan for your business or for personal use can be a nerve-wracking experience for first-timers. Lenders will want to know everything about you and your current financial situation to assess your ability to pay back the loan. When applying for a loan you need to create trust with the lender that you will pay back the loan in full at maturity.

Here’s what you need to do prior to applying for a cash loan:

1. Assess your financial situation and analyse your cash flows

Firstly you need to assess your financial situation and cash flows, both personal and those of your business as that will determine your position to pay back the loan. The affordability is judged by this factor, by banks and other lending institutions. Your cash flows will determine your financial standing and you will know how much you can afford to borrow and at what interest rate so that you are able to repay the borrowed amount comfortably.

2. Know Your Credit History

Secondly, a good credit score and credit history serve as a testament to the account holder’s ability to pay off debts on time. It not only enhances your chances of securing a loan for yourself or your business but also helps you in your future endeavours with your banking partner or lender. It is also important for you to check your credit reports and iron out any errors that could ruin your chances of securing a loan.

3. Strong Reasoning

It is important to have your financial records organised to get the desired loan but it is also essential, before applying for a loan, to know your reasons for applying for a loan and be able to clearly articulate them at the time of your loan application meeting. You need to be able to respond to all the questions with logic, reasoning and in a concise yet convincing manner that leaves no doubts about your need( personal or professional) for the loan you are going to apply.

4. Involve all business partners

If you are applying for a business loan you need to involve all of your business partners and key internal stakeholders in the decision-making process to obtain a loan and have the reasons for the loan thoroughly discussed internally. If you are applying for a loan at your banking partner or a traditional lender they will have to be present at the loan meeting and it is important that all partners are on the same page.

5. Have concrete plans

The ‘why’ of the loan alone won’t get it approved; the argument and application have to be backed by the logical reasoning as well as a plan for paying off the amount. You need to formulate such a plan prior to applying for the loan. If your business is a start-up, make sure you have a well-thought-out business plan for it that you are able to present at the loan application meeting.

It is key to ‘do your homework’ before applying for a cash loan. That way you minimise the chance of the loan application being rejected.