Money makes your business go, and usually banks extend business credit only to businesses with operating histories. This usually means that you need alternatives, strategies, and things to think about in your search for financial help. You should learn how to locate, negotiate for, and maintain sources of money to help you start and expand your business.
By: Hitesh Khan/
Money makes your business go. But don’t try going to a bank to get it when you’ve just started in business. Banks normally extend business credit only to businesses with operating histories. A banker’s primary concern is your timely repayment of loans. The fuel to make loan payments come from your cash flow. So your management of cash flow is of utmost interest to your banker and you must convince the banker that you are an expert in making cash flow projections that safely include your loan payments.
When starting a business, don’t be discouraged by not having much money to start with. Many businesses can be started with no money at all. You can start small and humbly and grow one order at a time. One important reminder is that personal savings should be considered the primary source of funds for starting a business. If you haven’t started already, start now to begin accumulating cash through personal savings.
As money of the life blood of any business, a business owner should also consider tapping on personal loans offered by financial institutions. The search for personal loans to finance business usually starts with having a good credit rating.
So, before seeking business credit, it is a good idea to know where your credit rating stands.
When searching for business credit, you are most likely familiar with a straight loan (debt) where the lender gets an interest rate and fees, but there are also equity financing, where the money raised gives the investor an ownership interest.
This is common in the sale of stock to a limited number of investors or participation by venture capitalists. Sometimes such a discussion on equity financing arises with friends and family who want to be your partner. Consider this carefully because they will then participate in the increased value of the business and have voting rights.
Business owners have a wide variety of options when it comes to searching for business credit.
But be mindful that the terms of each business credit extended will vary considerably from lender to lender; important issues to consider:
- Payback program/terms
- Loan size
As a business owner, you will be legally obligated to have individual responsibility for the credit obligation of your business.
Lending options for small businesses:
- Personal Savings
- Friends and Family
- Banks/Credit Cooperatives
- Home Mortgages
- Peer-to-Peer Lending
- Alternative Lenders
- Licensed Moneylenders
- Crowd Funding
- Equity Funding
- Venture Capital
- Angel Investment
- Commercial Mortgage
- Specialized Lenders
- Lending Companies (OneMain)
- Finance Companies
The art of getting business credit starts by knowing what your lender wants. A common way is to simply ask. A better way is to ask a friend or business advisor such as loan specialists.
For a business loan, the most common things are
- Business financial statements
- Business tax returns
- Business plan with budget or projection
- Personal financial statements
- Personal tax returns
Be ready to answer questions about your business, and be ready to highlight your financial performance both in the past and in the future. You will be more impressive if you have carefully thought out and become familiar with your plan. Be prepared to tell lenders why you need the money. “I just need the money,” does not inspire confidence or the fact that you have thought it through.
When searching for business credit, always propose a repayment plan. Examples of different structures are
- A line of credit, payable at your discretion but subject to renewal annually by the bank; and
- Term loan payable monthly over several years, starting on a particular date.
Most places have some flexibility. Potential lenders appreciate that you are thinking about paying them back instead of just getting the money.
The first thing that will spook lenders or investors is the fear you are “puff” rather than “substance.” So, avoid giving the impression of being an over optimistic, “pie-in-the-sky” operator. If you are a start-up, do not plan to spend money on expensive entertaining. Your lenders will be more interested in knowing how their money is being used to grow your business. Also, make a shrewd appraisal to minimize your risks and to limit losses to a predetermined limit.
How to Secure Small Business Loan Quickly
In raising start-up capital, talk to the loan consultants at iCompareLoan. We can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
To find out more about Peer to peer lending versus that of SME loans so as to make an informed decision: SME Loans or Peer-to-peer (P2P) Lending – What is the difference?
Contact us for advice on a new SME loans.
Contact us for home loan or refinancing advice.
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