3 important ways to make your business attractive to lenders

Micro, small and medium-sized enterprises (MSMEs) make up over 90% of all firms and, on average, account for 70% of total employment and 50% of GDP worldwide.

But MSMES are finding it increasingly difficult to access funding. According to recent figures from the International Finance Corporation, (part of World Bank Group) the MSME finance gap in emerging markets and developing economies (EMDEs) now stands at $5.7 trillion.

The key routes to funding

For your micro, small or medium-sized business to thrive, it’s important to have easy access to funding. But what are the usual routes to take when looking for additional funding?

For many business owners, the starting point has traditionally been their bank. Overdrafts, business loans and access to credit cards open up a route to extra capital. But with the major banks currently reluctant to lend to MSMEs, the lending market has diversified.

Private finance specialists and fintech platforms offer ways to borrow. But despite the proliferation of alternative lenders, it’s still vital to be an attractive proposition for lenders.

How to make your business more attractive to lenders

Lenders don’t want to lend to a risky prospect. As a business, it’s critical that you have a positive credit profile, good sales revenues and the available cashflow to repay the loan.

To present your business as a more attractive prospect, try these three key approaches to good recordkeeping, cashflow administration and debt management.

→ Keep accurate, real-time financials: Using cloud accounting software, like Xero, QuickBooks or MYOB, helps you provide potential lenders with the financial data they need. Having up-to-date balance sheets and cashflow statements gives the lender a clear overview of your financial performance and reduces the perceived risk of lending.

→ Demonstrate consistent cashflow coverage: Focus on achieving a strong debt service coverage ratio (DSCR). If you can show consistent, recurring revenue that comfortably covers the company’s existing and proposed debt obligations, this reassures lenders of your ability to repay.

→ Strengthen your business credit scores: Regularly monitor and improve your business credit score by paying suppliers early and correcting reporting errors. A high score signals you’re a low risk to lenders and eases the path to lender approvals.