Business financing is an important discourse in business start-up process and many would-be entrepreneurs who seek for bank loan are greatly disappointed when the bank turns down their application. And this could be a traumatic experience for many, their idea or business visions die down the drain after such experiences. In recent times, the banks have stopped playing the big brothers role to investors and are alternatively applying their fund in other areas where returns are considerably higher. And this is greatly telling on all business especially small business because of high risk accompanying these businesses.
According to Stephanie Barlow, a writer with an American based business Magazine Entrepreneur, getting a loan to expand or improve a small business is difficult, nearly next to impossible. The banks unwillingness to lend to small business owners must have been informed by their past experiences such as costly business transaction, high interest rate etc.
Despite the pathetic and gloomy situation, business owner or would-be entrepreneur may find themselves in; you must understand that not all prospective borrowers are turned down by banks when they apply for startup loans for their businesses. The Game of borrowing as with other games must be played with rules and only those who obey the rules smile at the end. Here are the rules or guidelines and following it can make you lucky
1) Be Very Prepared
As you intend to go near the doors
of any borrowing institution for a loan, you must be prepared with your
up-to-date business plan. Ensure that your plan has passed through the eagle
eyes of a lawyer and an accountant to affirm that all loan-related aspects are
well taken care of. To seek finance for your business from either the bank or individual, you must be thoroughly prepare. Business financing required a well prepared business plan.
2) Get Informed
Apart from your well prepared plan, you must also have an understanding of your business and bank that knows your business and have possibly dealt with companies like yours before.
3) Conduct Market Research
Despite the credit crunch in the economy, many small business owners are still applying for and getting loans from banks. Most of those who fail do so because they are not prepared to search around for the right bank. It is advisable to talk business with other business owners using the services of bank. Be up-to-date on who’s lending and who is getting loan.
4) How much?
Be very exact as possible in the amount you want to borrow. Don’t forget to add a little extra for oversights and contingencies. Never approach a bank asking to be lent as much as they can. This portrays that you are not serious and may be dubious. Be very precise and accurate in how you will use the money.
5) The Purpose for the Loan
Knowing exactly what you need the loan for may answer one of the many questions your lender may ask. Have a defined guide of what you intend to do with the loan, the time frame and type of spending you want to adopt.
6) Why their Bank?
The obvious question from the lenders point of view is why you should choose them instead of other lenders in the area who could also supply your needed funds.
This is where your knowledge of your prospective lenders comes to play. A borrower who is abreast with his proposed lender’s activities and developments stand a better chance to have his request approved than one who is not.
7) Why Not your own Money?
This question is complementary to the one above, though there is a thin line of difference, so your answer to it may contribute to this also. All that you want to find out is the reason(s) why you could not raise your own money for the business. From this question also, insight will be gotten as to whether or not there is an internal management problems (i.e. for existing businesses) or whether your need is economically legitimate.
8) Duration of Repayment
Also include a well planned repayment time frame. Just as you need money for your business to continue existing, your lender also do? They need this money back at a particular time to enable them extend similar services to other business owners who are in need
9) How do you pay?
In how to pay back, you must be exact and definite. Avoid vagueness. Be specific on what you will pay and when. Do not rush to offer short-term payments but with your business plan projection, try to settle for a long-term when the profitability of your business must have been determined.
10) Suppose your plan don’t work out?
If there is anything lenders are traditional about in the business of borrowing, it is the collateral or security that they hold on to in case any eventualities. Just as you wouldn’t leave your door open while away from home, the bank will not part away with fund under its custody without collateral. You must reassure the lender/banker of the value of your collateral in case your business plan doesn’t work out.
Finally what happens after your loan has been approved or rejected. If turned down by your bank, all you need to do is to arrange with your credit officer for a possible roundtable discussion on your possible problems and how they could be corrected. Also you can decide to build a business structure that does not need much startup and thereafter in future implement you big plan.
On the other hand, if your loan application was approved, it is essential that you maintain a good relationship with the bank. Maintain close relationship to enable them know how you are doing and hence assist in whichever way to make things easy for you. Don’t come to your lender/bank only when you are in trouble. Finally, you must use creativity and innovation to market your product or service efficiently in this ever tech world so as to make the needed growth in your business.
Borrowing money might be the next option, but it isn’t magic. Your duty is to find a better way while the duty of the bank is to lend.
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