The funding market has drastically evolved in a couple of years. Gone are the days when business loans were the only available option to finance your business needs. Thanks to the constant analysis of borrowers’ needs, lenders have now been able to come up with specific loan products for specific problems. Whether you are a startup or an established business, you may need to borrow money at some point in your life.

For lenders, it can be a bit challenging to identify the needs of their clients and then provide them with the right solution.

Ways to understand the needs of clients to provide them with the right financial product

Here are some of the effective ways to ensure that your advice will work to your advantage:

• Do not treat all clients the same way

Every business has different needs and therefore it is not a good idea to propose all of them a business loan to meet the funding gap. Some of your clients might need money to expand their business, while others might want to borrow to buy equipment. Some would want money to meet the cash flow gap, while others would want to fund small emergencies. Of course, business loans cannot be an effective solution for all of these clients.

For instance, for those who need money to fund the gap in cash flow, invoice financing or revolving credit cards can be an ideal option. Likewise, for those who are looking to buy equipment, you should recommend equipment financing. Loan solutions tailored to their needs will help them run their businesses in a much better and smoother way.

Before you decide to offer a loan product to your client, you should carefully analyse their current and upcoming business situation. Businesses are more likely to thrive when you provide them with the right solution. It will help them manage their funds more efficiently and, as a result, you will also not struggle enough to get your money back on time.

• Set affordability benchmarks

An affordability check is a must to ensure that your clients will pay back money on time. Remember that it is not only limited to a perusal of a credit report because it will only demonstrate the past payment behaviour, but you also have to check the future repaying capacity. Every lender sets their own rules to decide whether or not they should lend money. For instance, some lenders may offer your business loans without a guarantor despite a bad credit rating, while others will suggest you apply for guarantor business loans.

It is impracticable to set the same benchmarks for every borrower because their financial capacity, needs, and, above all, the associated risk varies. Ideally, your client can borrow up to 25% of the annual turnover through a business loan but do not forget that turnover is just one factor. You will have to focus on overheads, other debts they already owe, any line of credit, or projected profits. There is no guarantee that the business will generate any close to the sales it had in in previous year this time, too.

Risk assessment should be done thoroughly, and it should serve as the basis for lenders to decide whether they should lend money to their clients or not.

The type of loan your clients are looking to take out also matters. For instance, lenders do not follow strict approval criteria for unsecured loans. If the loan amount is very small, the decision is immediately made. However, things are quite complex with secured loans. A business finance broker can come in handy for taking out a secured loan. They will introduce you to a lender that fits your needs.

• Years spent in business

There are various types of loans that cannot be approved for startup. A business loan is one of them. They are normally paid back in a couple of months, so no lender would approve your application for a small business unless you have a trading history.

For instance, your clients cannot be offered a business loan when they have not even spent two years in their businesses, but it does not insinuate that they should not be able to access other options. After identifying their needs, they can be offered some loans such as invoice finance, a line of credit, a business credit card, startup loans and the like.

However, it is likely that your client does not find them suitable at all. In that case, you will have to be a bit flexible with your lending approach. For instance, you can ask your client to secure the loan or arrange a guarantor.

• Documents

Every client will be required to submit certain documents to have the loan application processed. The document requirements vary by lender. For instance, every lender would look at your bank statement, but some lenders may expect you to submit the bank statement of the previous six months while others would like to see the statement of the previous three months. The same rule goes with profit and loss statements.

Bear in mind that most of the documents will be common, but in some cases, your lender may ask you to submit additional documents. It depends on the type of loans you are taking out and your financial situation as well. Sometimes, your lender may need to go through extra documents to carefully examine your repaying capacity. While loaning money, each lender would make it clear that their clients have sound financial situations.

The final word

It is vital to carefully identify the needs of your clients before lending them money. The loan product they get must be tailored to their specific needs. It is crucial for lenders to be flexible with their approach, but it does not mean that they should lend them money even when they cannot.

By identifying the needs of clients, lenders can provide them with better advice. This will prevent them from struggling with payments, which is good for lenders, too, because they will get their money back.