Facing a banker that lives life by the book can seem like quite a difficult an intimidating experience when applying for a loan for a start-up.
If you would like to become a future business owner, don’t fret, the key to getting the loan approved is being prepared and formulating an iron-clad business proposal. This means developing a feasible and viable business plan, getting your income tax returns in order, and making sure your credit report show financial responsibility.
Your business plan is the most critical document when it comes to selling your idea. It should explain exactly what the business intends to do, walking through each detail from A-Z.
This will help you identify potential weak areas that you may have previously overlooked. With that said, a thorough market analysis is a must, so be sure to explain what it is that makes this idea better than the competition, and how the business will gain and retain customers.
The question is never how much you can borrow, it is to show the exact amount you need to accomplish A, B and C, which will lead to X result and enable Y loan repayment installments.
Remember bankers are not in the business of taking big risks, their first and last question will always be how they will be repaid.
The plan should cover a wide variety of possibilitiestoo such as how increased competition or pending regulations would impact the business model.
It should also have projections for cash flow, balance sheets and the specific terms for how the loan will be repaid.
With the company still waiting in the wings, the character of the applicant (who you are as a spender) is very important as it determines the promptness of future repayments.
The lender has to rely on the applicant for reassurance of payment, which is why it is so vital to show a strong personal credit history that displays all your personal qualities such as dependability and responsibility.
It would be best to request credit reports from three agencies well in advance, and review it carefully for potential growth areas. This may take months to correct, despite how obvious the errors may seem.
This can be a good time for you to analyse your household finances in general and see whether certain areas require room for improvement.
Paying off high interest credit card debt and installment loans makes you look more desirable in the eyes of a lender, and it also boosts your credit score favourably.
Keep in mind, since the company has no track record yet, it is all about how well you can present your financial stability and general character.
It is common for lenders to check your personal income tax returns for the past three years and personal bank account statements for the past year.
Remember to include copies of business permits and licenses, professional accreditation relating to the business, your franchise contract, lease paperwork and so forth in the loan package.
Many lenders require collateral to grant loans, especially in riskier lines of business. Make sure to have a current assessment in writing.
Does your current bank or credit union offer small business loans? If yes, then that would be the obvious place to start. If you have never spoken to the small business banker before, he will see a personal history of reliable savings and a mortgage in good standing, which will give you the upper hand.
If that option is not available, research lenders where others in the industry have received their loans.
For example, a local credit union that specialises in agricultural small businesses is much more likely to consider a loan by an upstart grower than a large bank.
As a rule, smaller lenders are more flexible and they may be easier to persuade with a strong sales pitch.
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