As a prospective entrepreneur, one of the honest questions you will have to ask yourself is how possible it is to secure loans for your business. If you are already at this stage, congratulations, you found the right article and if you are yet to get there, well, having a dependable foresight is equally helpful.
There are several ways of getting a small business funded, talk of Angel Investors,
Government grants, Family donations and all. However, the most familiar of these techniques is the Small Business Loan.
But the hurdles you may have to cross could push you to doubt the possibility of securing a loan for your business.
So here’s how it’s going to be. Here is a list of the most relevant do’s and don’ts, which respectively can aid or wound your likelihood of securing a loan.
Do’s
1. Have A Master Plan.
A master plan includes items like startup costs which are the summation of the cost of equipment, tech gadgets, inventory, license, office utilities, furniture and staffing you’d need. It is one of the major contents of the proposal you write to the lender. A master plan helps you create a broad idea of what your business would look like.
If this business plan is strong enough your financier may become more convinced on the prospects of your business. Other contents of a master plan include factors like cash flow, income, profit, and a spice of creativity to your business.
2. Check Your Eligibility.
The one reason lenders decline loan request is the lack of eligibility, courtesy; one of its determinant factors. Examples of such factors are your business and personal credit scores.
Information provided by this tells your financier of your monetary dependability and the ability of your business to bear the burdens of a loan. Other factors that determine eligibility are Annual Income, Business Operational Time (which of course can be written as zero for startups). A clear awareness of your eligibility heightens your chances of pursuing the right loan that ultimately gets accepted.
3. Choose The Right Loan Type.
This is just as important as choosing the right lending partner. A loan with inadequate flexibility may end up crippling your cash flow even before it starts running. Therefore, make this choice only after a thorough analysis of your business prospects.
Examples of loans available are:
a) Bank Loans
A Bank offers both secured and unsecured loans, depending on the amount you need and the value of assets you can offer as collateral. This is useful for large companies as its interest rates often become unbearable for small startups.
b) Business Lines of Credits
This is organized like a pool of funds you can withdraw from, and repay into when necessary. It has a direct variation with your credit score. That is; the higher your credit score, the higher a business lines of credit will pay you, and as well the lower will be your interest rate. However, there are lines of credit available for candidates with low credit scores.
c) Equipment Financing
This is the kind of loan access granted to small businesses that use expensive pieces of equipment. The advantage is for tech-related startups that purchase machinery that an entrepreneur’s savings can’t afford. So if you should fall in this category please be sure to check out equipment financing deeply.
Don’ts
Here’s a list of things you shouldn’t do if you need a loan, to avoid the possibility of getting declined.
1. Don’t Injure Your Credit Score.
This is one major factor that could keep your loan request unacceptable, however, if a financier accepts your request despite the low score, you often end up paying a higher rate of interest.
2. Multiple Loan Applications.
Avoid requesting loans from several financiers. This is because there is a general bureau that connects most of these financiers and when you request from one, the other already has access to information about it. Therefore your request for another could contradict the previous and stop both loans from pulling through.
3. Lack of Mentorship/Relevant Information.
An expert can pull you up from ground zero to the very peak of business, so long are ready to receive their advice. Likewise, an experienced entrepreneur or lender can give you very relevant information about your loan seeking exercise. These improve your opportunity and the lack of it keeps you at a low knowledge bar.
Final thoughts
These are the rudiments of securing a loan. If followed appropriately the possibility of acquiring a loan becomes a reality. But there are other factors you need to consider which are subordinate to the ones listed above examples include the negotiation power required and the correctness of your forecasts.
Thanks for reading.