This does not mean, however, that you don’t have to prepare to take a loan – you have to. It is necessary and above all worth it. Taking a loan is a business decision. The better you prepare for it, the greater the chances that it will bring the results you expect.
Getting a loan can be a challenge. The chances of getting it will be all the greater, the higher the lenders will assess your credibility, and therefore the probability that you will pay your obligations on time.
The conditions under which you will receive the loan also depend on your credibility: part of the loan price is the “included” risk of problems with its repayment, so the higher the creditor estimates the risk of problems, the higher the price of the loan.
Pay your debts on time
Bad news: in a short time you can do little to successfully build your “credit reputation” – in a short time, unfortunately, it is easy to just ruin it. The good decisions you make today will, of course, build your credibility, but their effects will not come immediately.
If you have so far been late with repayment of loan installments, then 3 or 4 installments repaid on time are probably not enough for the future lender to state that everything is all right. (But after a year it may look different.)
The good news is that if you have run a solid business so far, in particular – you have paid your debts well – then … you don’t have to do much.
Do not take more than you can pay back
Your credit past is not everything: lenders primarily want to predict your credit future. Assessing your story is one of the most important premises. The second is the ratio of repaid installments to your revenues.
As a simple and very universal rule, you can assume that the monthly sum of installments of your obligations (where we consider all the expenses related to the loan: capital part, interest rate, insurance, and all fees as “installments”) should not exceed half of your monthly revenues.
Many lenders have adopted this exact threshold as a necessary condition for granting the loan. If you’ve ever come across a DTI, that’s exactly what we’re talking about.
DTI is an abbreviation for English debt to income and it means the percentage ratio of the monthly sum of installments of liabilities to the monthly income. The aforementioned simple and universal rule boils down to keeping this ratio below 50%.
Limit the number of credits
A relatively frequent mistake of micro-entrepreneurs is incurring too many liabilities, and this is not even about the total value, because they are often loans for small amounts, but for their number. Meanwhile, many loans mean many repayments to plan and many opportunities to simply overlook one.
Like a small mistake, but – completely unnecessary – a flaw in the image of a solid borrower. Therefore, if you have many loans, it is a good idea to consolidate them in one way or another. Less monthly repayments mean less operational problems and therefore less risk of errors.
The second point: make a plan
If you have reason to believe – or you know for sure – that potential lenders positively assess their creditworthiness, the time has come for the next step, i.e. choosing the right loan offer. At first, reject those institutions with which for one reason or another (non-transparent procedures, reputation, other) you would rather have nothing to do with and those that you know that obtaining credit in them will be too difficult for you. The offer of those remaining on the battlefield should be assessed mainly in terms of price, but …
Follow the APRC (Actual Annual Interest Rate)
When presenting their offer, potential lenders will definitely emphasize its most attractive elements: once it will be no commission, once the interest rate will be low, and again something else. However, it is often the case that the zero commission is accompanied by an unattractive interest rate and the obligation to take out insurance, while the low-interest rate is accompanied by a high commission and more or less exotic additional fees.
The APRC reduces all these fees to one common denominator, and if that was not enough, the APRC has a very useful indicator in business. (You can read on our blog about how to easily calculate the APRC yourself and why it should be the basic method of assessing the attractiveness of a loan .)
Realistically evaluate your loan repayment options
It is true that at Good Finance we do not require a business plan or similar documents from you, but if you are thinking of taking a loan to implement a business project, as a working capital loan or as an alternative to deferred payment, it is worth building even the simplest repayment scenario and make sure that on repayment of subsequent installments of obligations you will have funds.
On the wave of enthusiasm, we often make very optimistic assumptions – for example regarding sales – but for the needs of such plans, it is also worth building a moderate and pessimistic scenario. And only having them in front of you, decide to take a loan.
Third point: apply
Be prepared for the fact that you will have to prove your credibility with a solid amount of forms, documents, and credentials, investing a lot of time, effort and nerves in the whole process. Because trying to get a bank loan can be a real … hmmm … character test ;-).
Well, unless you decide on Good Finance – then all you need is the NIP number, series and number of ID cards, log in and password for your company bank account, mobile phone and any device with Internet access – because that’s how you will submit the application.
“Application” is said a lot, it won’t take you more than 3 minutes to fill out our form (unless you try very hard :-)). You will get the answer after another 15 minutes, without leaving your home, without having to meet with a bank adviser, without providing a heap of forms and documents.