It is the question every entrepreneur with dreams of owning their own business has asked, and for good reason. Taking the plunge and starting from scratch isn’t cheap. There are a lot of startup expenses to take into account, such as inventory, property and vehicles, not to mention the high operation costs of keeping everything running smoothly–rent, payroll, travel, office supplies, marketing materials, legal fees and so on, just to name a few. Additionally, traditional bank financing do not like to offer new businesses credit until the business has 2-3 years of profits to make payments from. If you aren’t extra careful when estimating your budget from the get-go, you can quickly find yourself underwater and in deep financial trouble.
Thankfully other enterprising individuals have come before and displayed what it takes to get a successful business up and running. Here are a few of the key points to help better prepare you for when you need a business loan.
Work Out A Business Plan
Before they sign the papers, lenders want to make sure that you have a viable business model. So the first step towards securing a loan is developing a detailed business plan. The plan needs to outline in no uncertain terms the answers to several important questions, such as what your business intends to do? What products or services are you offering? How will your business stand up against the competition in your market?
In addition, lenders naturally want to know the fine points of your financial plans, specifically projections of revenue and expenses along with your strategies for growth or, if it doesn’t work out, a possible exit plan. So talk to lender beforehand to make sure you have all the financial statements and calculations they require. The more prepared you are going into the meeting, the clearer the purpose of the loan becomes. When lenders see that you have a defined vision for your business, they are more confident backing your endeavor.
Come With Collateral
Not every business will succeed, and lenders know it. Like everyone, they hate losing money on their investments. With that in mind, one way to assure lenders you are good for a loan is to support your case with collateral. Collateral consists of any assets you can use to back up the money you borrowed, such as equipment, property or anything that has real value. Of course you are not planning to fail, but by having resources in place as a sort of insurance policy for the lender, you will be much more likely to walk away with the loan you were looking for.
Consider a Guarantor
By their very nature, banks are conservative. Before they lend you any money, they want a virtual guarantee that your business is going to do well—and they’re going to get a good return on their investment. But many new business owners don’t always have the collateral to secure the financing they need to start. That is when you can turn to a guarantor.
Guarantors are outside investors that put their own personal assets on the line to help you obtain your loan. In addition to collateral, when you rely on a guarantor, it is their credit history that is checked instead of yours, so if your credit history is less-than-spotless, it won’t be an obstacle. Often guarantors are relatives or people you have a close connection to, but other times they are merely investors who believe in your business model.
For more questions on starting your business, feel free to contact us today.