Many small to medium businesses look into or even secure loans at some point in their business’s lifetime. However, despite this being a reality for many companies there is still not sufficient information available to small and medium business about how they should go about getting a loan. While each bank in Trinidad and Tobago will have a different set of requirements, especially when it comes to documentation, there are general rules that apply across the board.
Here are some things small to medium business should know about getting a loan from a bank in Trinidad and Tobago:
- Start the conversation with your bank as soon as possible
When considering a loan, businesses must contact their bank as early as they can. These discussions could save a lot of time and get a company on the right path toward getting the loan. Businesses are always in a better position when they come in with a wish to get a loan rather than when it is critical.
- Consider the 7 C’s of Credit
These are 7 of the main areas that a bank will analyse to ensure that a small/medium business is eligible for a loan and can repay in the future. Therefore, companies need to consider these factors:
- Credit: the credit history of the business and its owners, shareholders and directors and how the business is paying their bills, loans and suppliers.
- Cash Flow: financial statements, profit projections, inflows and outflows, receivables and payables.
- Conditions: the external factors that affect the business. Example: market/industry conditions, differentiation of product/service in the market and demand for the product/service.
- Capital: how the business is funded, assets the business owns etc.
- Character: proof of the good character of the owner, previous history paying off loans at the bank of choice or others and references.
- Capacity: assessment of the businesses capacity to repay the loan. For example, profits for the owner, profits for investments, payment of expenses and salaries.
- Collateral: what collateral does this business have to offer should the proposal be a little risky.
- Factors that can contribute to a loan being denied:
Various factors can contribute to a loan being denied. Here are 3 factors that often lead to a denial that business should pay attention to:
- Financial Statements: are key items that must be included when submitting a proposal, companies must ensure that their statements are up to date and can be validated by the bank.
- Security/Collateral: companies must ensure that their security and collateral is sufficient. For example, an accurate title of the property.
- Clean Credit History: banks will assess a company and its owners’ financial history especially as it pertains to delinquency with payments.
Want to learn more? Check out the video below: