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Small Business Start Ups - Tips on Securing a Loan
Preparing to meet with the bank for the first attempt of securing a business loan can be a daunting prospect for any new entrepreneur. If you are prepared you will have less to worry about and will be able to relay your situation and business needs more effectively.
Let's face it the main reasons why most small businesses fail is down to their lack of start-up capital. Banks, especially in these economic climates are less likely to give a loan to a fresh business and will give more credit to those who have been operating a business for 12-18 months, this reduces their risk.
Around 95% of new entrepreneurs start their business with personal funding, either from their own pocket or from friends and relatives. Lenders need to see what monetary risk your willing to place on your business, after all if your not willing to bet on it, no one should be. Often bank's require new applicants to contribute 25% to their business start up costs in order to make the loan a more attractive offer. Businesses with personal investment and a strong history displaying an ability to pay bills is always going to have more chance of success.
Keep in mind that Bank's have a set criteria to look for when assessing business loans, the main thing they will assess is your ability or the companies ability to repay the debt. Bank's have investors and shareholders to answer to as well, any unpaid loans cause instability, something Bank's are trying to avoid at all cost.
The amount of money you request needs to be realistic. This is not to say you should under estimate your costs as this is a fundamental error, but whatever you ask for needs to be backed up in a well structures business plan. Ensure you have your plan ready in the interview, showing cash flow projections for at least the next three years. Aim for a reasonable balance between debt and equity.
Another important factor to securing your loan relates to your relationship with the bank or banker. Do you have your main business account with them? If not this is a must, it is important for the person making the decision to see how your business operates, be honest and assist the bank in keeping your business file up to date. It is vital to approval that you keep all your files in order, this displays business worthiness and goes along way to creating trust with the Bank. Getting a business loan is no easy task, don't expect it on a plate be fully transparent and your on the right track.
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