Since the announcement of the Temporary Bridging Loan for SMEs extension to March 2022, I thought this would be good timing to share methods on how you can increase your chances of obtaining a working capital loan.
At the start of the Covid-19 pandemic, SMEs were relieved to receive support from the government through participating financial institutions (“FI”). While many companies received this support, a large number of SMEs did not get the support they were looking for, as ultimately, the lending decision is made by the participating FI, and these decisions are made based off their lending parameters.
Before you apply for the Temporary Bridging Loan, here are some tips that can possibly help reduce waiting time and uncertainty.
Purpose of the loan:
The purpose of the loan should be as specific as possible. Try to get into the details to help lenders understand that the requirement is genuine and that the money will help propel the business forward.
For example, you need working capital to purchase goods worth $100. You are making this purchase to service an order from an existing client.
Presentation of financial documents:
It is really important to have your financial documents prepared and well presented. Lenders appreciate and find it helpful to have your reconciliation up to date to a current and accurate picture of your company’s financial standing.
Plans moving forward:
In the same way investors want you to pitch about your company’s future, lenders are equally interested in where the company is going over the next year or two. These plans should be realistic and backed by numbers.
By providing lenders with a realistic roadmap, you can assure them that you will have the means to pay on time for the duration of the loan.
You can do this, for example, by sharing new contracts you have obtained, how this new contract will increase revenue, how it will impact operating expenses, and ultimately how this impacts your profitability. It would be helpful to lay out your plans in the following format:
Revenue – what is the potential outcome of your new contract? Conversely, if Covid-19 has a negative impact on your business, what are your plans to ride this down trend?
Gross Profit Margin – As obvious as this sounds, your cost of goods should not exceed your revenue.
Expenses – What does an additional contract mean for your business? Would you have to hire additional headcount? How would it ultimately affect your profitability? Conversely, if your business is severely impacted by Covid-19, what are your plans to reduce expenses and to remain profitable? If you are expected to make losses, what are your plans to stay afloat? For example, we have seen travel companies pivoting to conducting virtual tours. Share these plans with your lenders to get them comfortable with putting money on the table.
I hope you find this narrative interesting to you. If there are topics you would like us to cover, drop us a message at [email protected]