Ravi Chandran
When financial crisis comes knocking, many entrepreneurs would consider approaching lenders and alternative financing sources.
By: Hitesh Khan/
Many businesses tend to undergo certain financial constraints in the course of their development most of the times. When such times come knocking, many entrepreneurs consider approaching lenders and alternative sources of financing.
There are several lenders ranging from banks, non-bank finance institutions as well as alternative financing sources such as crowdfunding sites available to the entire business industry.
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However, not all businesses are able to access business loans. This is because of several factors that many lenders put into consideration. Unfortunately, not many businesses meet all the requirements that financial institutions need in order to grant them business loans or lines of credit. On the same note, some business owners do not know factors used to determine the business creditworthiness. Here is a look at what lenders look for before extending any form of credit to a small business entrepreneur.
For a small business to get off the ground, or to keep one operating, it must have financing which is often in the form of a business loan. One form of small business financing is debt financing. Small businesses can apply to banks or other financial institutions, like credit co-operatives, for commercial loans. Usually, banks do not make loans to start-ups, but they do make loans to ongoing businesses. These are the major steps you should follow through the loan application process.
It seems obvious that a small business owner would know the reason for and amount of the business loan they need. If the business is a start-up, this is not necessarily true. Owners of start-ups may only be in the process of determining the number of funds they need and why.
Business owners, whether the firms are start-ups or existing firms, need to take some time and be able to articulate why they need a business loan and how much they need. Often, businesses may not be able to address the question of how much they need until they prepare their financial statements as part of their business plan.
When reviewing your borrowing options, look at the commercial banks available to you. Don’t just go to the large, international commercial banks. You may have a better chance for a loan at the smaller credit co-operatives.
Alternative financing sources like licensed moneylenders might be another option for you.
If you are a member of a local credit co-operative, talk to the loan officer there about your need for a small business loan. If they make such loans, pick up a loan application there as well. There are alternative financing sources, such as micro loans that make loans to startups. If one lender turns you down, another may say yes to the same loan application, so keep trying.
Preparing business plan may be your most important step. In order to get a small business loan from just about any lender, you have to prepare a good business plan. In fact, until you have a good business plan, chances are you won’t even know how much money you need or how fast you can repay it. The business plan is in addition to the loan application required by the financial institution.
Business plans consist of many parts. A good business plan will have several years of past and project financial statements for your business. It will include a statement of collateral or the type and value of assets you will use to secure the loan. You will need to include an analysis of the market your business will serve as well as a statement of your own experience.
In order for the loan officer at your financial institution to give your application for a small business loan a second look, you have to make it compelling with your presentation. Prepare a presentation of your business plan and application for your loan officer.
Whether your presentation is to a bank or to an alternative financing sources, put together a professional package to hand to your loan officer with a narrative plus any financial statements, spreadsheets, charts, and graphs necessary.
Be sure and include an Executive Summary. Many loan officers read the Executive Summary first and decide whether they are interested based on that. Make an appointment with your loan officer and request enough time to do a short presentation, with visual aids, based on your business plan. Be concise, succinct, and organised.
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