Small Business Loan (Part 1)

Every businessman’s nightmare:  Frustrated with your banker with the Bank taking an awful long time to approve your business loan or the bank asks too many questions. Sounds familiar?

It all began when Ah Chong decided to expand his trading business by taking on new product lines to spread his risk as well as reduce his over dependence on a few products. Naturally, being in business for several years now, he relied much on his own savings and credit extended by his existing suppliers where he enjoyed favourable credit terms.

As the business centred on old customers and repeat sales, little was done on promotions and creating awareness for the company and its products. What that means is that there was little paperwork or promotional activities let alone a company profile. No reason to go to the bank for working capital loans.

Operating from rented premises, the existing stocking area was not sufficient to handle additional stocks for the new business. Before going to the bank, Ah Chong knew that he had to get his act together and there were a few important decisions and strategies that needed to be in place as well as the timing of funds so that deadlines of the launch of new products could be met.

Some of the questions that needed to be answered were:

  1. About the existing business – customers, terms of trade, scale down, competition?
  2. About the new business – new customers, pricing, promotion (including online), competition, when to launch, SWOT analysis, terms of trade?
  3. About the existing premises – is there sufficient space? If not, consider new premises
  4. About the new premises – location, additional rental?
  5. How much funds are required to fund the new business?
  6. Where would the funds come from? If the fund avenues (one’s own or from friendly parties) are exhausted, then consider approaching bank for financing.

Lessons to be learnt:

  • You need to know your business and the numbers behind your business
  • Have the business plan/framework drawn up

What happens next…….watch out in the next edition.

Lim Guan Chye

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