You have a brilliant business you are running, and so proposing to apply for loan from a potential microfinance bank. The chances that your loan proposal will scale through will be determined by some factors.
Below we look at some of the secrets to getting your loan application approved and the likely reason why it may be rejected.
Maintain a Healthy Credit History
The days of granting loan without checking the credit history of potential borrower from a credit bureau data base is gradually going into extinction. Except for some MFBs and the unsupervised microfinance environment that don’t follow adequate procedure for loan granting. Prompt payment of loan shows your creditworthiness and is a prerequisite for having a good credit history. This in turns encourage the MFB to granting new or further loan to potential customer.
Have a Detailed Investment Plan
Every credit analyst want to understand what you want to do with the MFBs money before they are able to grant such to you. You need to convince the lending institution that the loan is not meant for unpleasant things hence, the need to present a thorough and detail business plan.
The business plan don’t need to be complex but should include information about the business, viable market for the products or services that you are offering, the years of experience in the business, the marketing strategy for reaching out to potential customer and the potential revenue to the business.
Get Yourself a Good Guarantor
As a medium and small scale entrepreneur (MSE), you will need to get a guarantor to back up your loan application. While this is a prerequisite for some microfinance banks, some don’t require you have guarantors. The rationale behind this is as a result of some target group that is being served.
A guarantor gives the MFB assurance that the loan will be paid as he put pressure the client to pay and also make good payment should in case the loan goes bad and the client is unable to pay. Your guarantor should be a person with valuable assets who should be able to take care of himself and the person he guaranteed.
Reasons Your Loan Application Might Be Rejected
While you are doing your best to impress your MFB that you are a good customer and would pay promptly remember to avoid some pitfall that may require the financial institution to reject your loan application.
- Avoid multiple loans: Too much loan from different microfinance banks can have an adverse effect on a client’s business. When the financial institution is aware of a client having multiple loan, it portray the client has been unable to manage his resources hence the dependency on multiple MFB. They would not want to embark on a collection effort only to meet a rival MFB struggling to collect their own repayment.
- Avoid illegal business: The legality of your business would determine if your loan application would be accepted or rejected. The Amended Regulatory and Supervisory Guidelines for microfinance banks state the type of business that should be finance. Click here to read permissible activities by CBN.
- Maintain a positive cash flow: The MFB wants to know if you will be able to make good your promise to repay back the loan giving you. The best way to determine this is to properly analyse and understand the client’s cash flow. Other prerequisite like the 5Cs are very important but, the cash flow will show the inflow and outflow of the clients business in other for the MFB to make a concise decision about the loan.
Do you have other areas that we can learn from to improve the loan approval process from financial institutions? Let’s have your contribution.