Anyone who wants to apply for a business loan is often confronted with strict requirements for the credit check. A high level of bureaucracy as well as lengthy application processes often prevent a quick procurement of liquidity. We therefore show what precautions need to be taken to increase the chances of a successful credit decision, what the difference is between applying for a loan from an online lender and a traditional bank, and what additional alternatives you can fall back on.
Creditworthiness: Is your company creditworthy?
The creditworthiness of a company provides information about the debtor's ability to meet payment obligations in a permissible and timely manner - it thus reflects the creditworthiness of a debtor. The final approval or rejection of a credit application is then usually decided by a rating procedure, such as the SCHUFA score. This is made up of an evaluation of all factors influencing creditworthiness. The data of the respective company are collected and evaluated by external agencies. The lender can then query this information.
Depending on the credit rating of a company, the lender decides whether and at what conditions he can grant a loan. If the credit rating for a company is very good, the company seeking credit often receives comparatively favourable conditions. If, however, the creditworthiness of a company is rated as low in the course of a credit check, the chance of a loan approval is correspondingly low or the conditions are comparatively poor.
Requirements to apply for a business loan: Bank vs. online loan
credit application to the bank
If you are looking for a lender for certain projects, the thought of applying for a loan from your own bank is often not far away. However, it is often difficult, especially for young companies, to meet the strict requirements for a bank loan. Banks often require the balance sheets of two completed financial years. In order to improve the credit rating, banks also frequently expect strict security requirements such as a guarantee with personal liability on the part of the business owner or an insurance policy. In addition, a bank often requires that the borrower has all business accounts with that lender, which usually results in higher costs in the form of account maintenance fees as well as indirect costs associated with switching accounts.
In order to be able to apply for a business loan from a bank, a number of documents are also required. In addition to a convincing business plan, an income statement, the financial and liquidity planning, a planning statement for up to three years, order lists, the bank statements of the last few months, a business management evaluation, identification documents and the receivables/goods inventory are often required - to name just a few examples. It is also possible that the bank will ask for further documents such as an overview of liabilities, investment planning, a list of all collateral, an extract from the commercial register or a curriculum vitae with professional history.
Online credit application
Online lenders are often more flexible when it comes to the requirements for a loan approval. Regarding the age of the company, online lenders often have lower requirements than a bank loan. Regarding the company age, online lenders require only three months in the best case.
There are also often fewer bureaucratic hurdles involved in an online loan application than in a bank application. With online lenders, you can often upload the required information directly online or even link your bank account and, if applicable, your e-commerce account. This way, the data can be made available immediately without any effort.
For more info see also the article: fulfin vs. bank loan
Processing the loan application: bank vs. online loan
credit application to the bank
Anyone who submits a loan application to the bank is usually confronted with lengthy and complicated processes. The first step is to make an appointment for a meeting with the bank, which is primarily aimed at providing concrete financial figures and gaining a personal impression. It is therefore advisable for entrepreneurs to prepare extensively for the financing meeting, to have answers to possible questions prepared and to prepare the documents. In order to obtain a precise overview of the loan conditions, it is also advisable to arrange meetings at various banks and to compare the conditions offered in each case. If you have a short-term financing requirement, a loan application to the bank is often out of the question because, on the one hand, the approval or rejection of the loan cannot usually be decided immediately after the interview. In this case, the company may have to wait. On the other hand, banks often do not offer short-term loans; companies usually have to reckon with a credit period of at least one year.
An online loan application, on the other hand, is usually the faster as well as easier method of a loan application. All that is required for the application process is to submit an online application. After uploading all the required documents or connecting the e-commerce account, the company will receive the financing offer within a day.
Learn here even more about the differences between a bank loan and an online loan.
Tips to increase your company's credit rating
1. higher equity ratio improves credit rating
If you want to apply for a business loan, the equity ratio is an important assessment factor in the context of a credit check. The equity ratio indicates the ratio of equity to total assets. A higher equity ratio signals financial stability and independence from lenders - and increases the chance of credit approval.
2. establish a sound financial plan
In order to secure the liquidity of a company, it is advisable to draw up a solid financial plan. In addition to the capital requirements plan, this also comprises liquidity planning, the profitability forecast, the balance sheet and the profit and loss account. By means of a finance plan, it is possible to maintain an overview of current costs, optimise the costs of loans and investments and increase creditworthiness.
3. remaining solvent through fintechs
Investments, such as orders for goods, are necessary, but also reduce liquidity - which in turn has a negative impact on creditworthiness. The chances of being approved for a loan by a bank decrease. Fintechs, on the other hand, can include alternative collateral in their credit assessment: for example, products may already suffice as collateral. Receivables or future cash flow can also serve as collateral, as long as the liquidity thus obtained is used for general business purposes. Moreover, with Fulfillment Financing, a form of financing developed by fulfin specifically for e-commerce companies, a company's respective e-commerce platform, for example, can be linked to the credit software. This saves costs and time for lengthy credit applications. In addition, the repayments of the previous financing or the repayment schedule are often aligned with the e-commerce sales cycle.