Most of us dread bank loans and a mere idea of having to ask for one. This sometimes feels like a gamble as your business may or may not succeed and you will end up losing more than you were able to invest. There are certain grounds you have to cover before you venture into the cruel world of finance and interest rates in order to avoid a disaster.
Take your business plan seriously
Your business plan is the foundation of your venture. You cannot move forward without it. This is why you need to make sure it is done properly. Hire a professional to assist you in creating one and you will know exactly what you can expect. The bank clerk may even ask whether you have one and request to see it, so the more thought you invest in it, the better.
How much do you need and when?
This is another place where your business plan comes in handy. You need to calculate as precisely as possible how much money you need to take out. Also, you need to refer to your business plan to understand when each of the expenses is due. Perhaps you can start without a loan and ask for one at a later date. This may allow you some time to build up your credit score or shop around. Again, if certain things can wait, perhaps they can be obtained from the business revenue and you do not have to take out a loan for them ahead of time. Do not forget to make provision for the fees as banks have a way of immediately taking a part of the loan they give you.
What type of loan do you need?
Not all loans are equal and conducted under the same terms. Based on the amount you have decided you need, you can choose a category of the loan. Also, what is it that you will spend the money on? This also affects the type of loan you require. Find a reliable person in the bank to assist you with making the best choice. It would not hurt to have a friend or ask an independent professional to advise you. Dean Willcocks Advisory has had people turn to them as they are worried that bank clerks may forget about the customer’s best interest and think about the bank’s wellbeing.
Can you pay it off
Now that you know approximately how much you will owe and what your monthly installment is, check the business plan and the forecast for your predicted revenue. Will you be able to sustain that expense or will that money have to come out of your pocket? If your worst prognoses can cover for the installment, feel free to sign off on the loan.
Collateral and the personal guarantee
When selecting the type of a loan, try fitting into the one that does not require a collateral. However, this is often not possible. Banks are more eager to grant loans when you sign off the personal guarantee as that way they are more or less confident that they will get their money back. If you have to offer a collateral, please try not to make it your family home as that puts a lot of stress on the entire family and the negative energy and neediness will not have a positive effect on neither your business nor your private life.
Check and improve your credit score
As mentioned above, the longer you can wait, the more time you will have to boost your credit score. Check the credit score first and fix any issues that may come up prior to asking for a loan. If you let the bank check your status with the credit bureau and there are issues, they will not be able to approve the loan and they will be less likely to consider you the next time. A good credit score can lead to getting better conditions for the loan you need.
Do you really, really need it?
Do you really have to get a bank loan, or is there an alternative. Do you think there is someone in your life who shares your idea and would not mind entering into a partnership with you? If you would like to be a sole owner of the business, you can still ask friends or family for either a loan or an investment. You can see whether there is someone in the related industries who would like to invest in your idea. Nowadays there are agencies and organizations offering loans for funding new business ventures. Check whether your state or local government offers subsidies for a business in your niche. Also, governments tend to have funding contests for young entrepreneurs and the self-employed.
Start small and stay safe, do not let your business slip away, you need to stay in control. Get financial acumen training as it will help you understand your finances and not waste opportunities you have invested in, especially if they are financed through a loan.