Businesses have trouble securing finance at the best of times. Normally you have to have two years of solid financials before a money lender like a bank will even consider lending you money. Often you need to have a strong personal credit record to be eligible for a decent business loan from start-up. There are other lenders that offer business loans specifically for start-ups so the process is easier now than it was a decade ago. However, to stand the best chance of securing those much needed funds, follow these four steps to cement getting approved:
Be a home-owner
As a homeowner you will already have created a history of borrowing and are in possession of a large asset that can be used as security. Lenders are risk conscious. Business start-ups are in a high risk bracket. There is no way to tell if your idea will work, or you are a good money manager or if the execution of the idea will go to planned. They have to rely on your existing assets to pay the debt in the event of default.
Include all your assets in your application
The level of borrowing you can secure is normally determined by the amount of security you can place against the loan. Being a home owner is suitable as usually that is the biggest asset a person or a family owns. In a business, there may be more than one person applying so each person should list their assets as security to garner the highest loan possible.
Items that are considered assets include:
Cash Property Shares Bonds Vehicles The higher your asset value the more money you are able to borrow. Be careful not to over-extend yourself as you are liable to lose each asset you use as security against your loan.
Have a good income record
Have your old tax returns on record to demonstrate that you have had a good history of income. Even though starting a new business will affect this, if it demonstrated that you are capable earner then it does make the lender less cautious.
Account exactly where the business loan will be allocated
This is vitally important to getting your loan approved at the maximum level. If the lender can see where exactly the money is going they can ascertain if your application is viable. If you just make an application of $50,000 with no indication of how you are going to spend it then you may well get rejected. If you make an application for $100,000, where the total is itemised you are likely to be approved:
$15,000 is for premises $50,000 is for equipment $25,000 is for inventory $10,000 is for staff From this quick list, the money lender can see that if you default they can retrieve money from equipment and inventory that will account for 75% of the total loan as well as the security you have put up.
About the Author
Phil Trumble a business advisor for 180 Business Loans. 180 Business Loans has assisted many businesses that were in financial difficulty by providing debt alternatives, short term loans and business advice. You can find out more at http://www.180businessloans.com.au