For new businesses, getting finance to support your business in the early stages will be crucial. However it can be difficult especially with the current economic climate making banks wearier of committing to lending. Banks are also concerned with the risk involved and protecting their capital. Banks have started to lend again and this can only be good news for new business owners and entrepreneurs. Banks want to feel safe with business owners and need to know that the loan will be paid back in full. Any bank will look to recoup the principal of the loan whilst also charging an interest rate that is acceptable. Banks are fully aware that if they support business owners there is a probability that they will use other services in the future as well as taking out more loans. The main concern for banks is risk. Meeting with your bank manager can be a good start to securing the finance that you need. First step is to confirm the following:
- The amount of money you need to borrow
- Why you need the loan
- How you plan to repay the loan
- Projected income
All this information will be included in your business plan that will be presented to your bank manager when applying for the loan. To improve your chances of getting a loan for your new business, you should consider the following.
1. Personal Character:
Any small business loan will be a personal loan and in most cases this may be borrowed through your own personal bank. Their experience with you will be important criteria when it comes to approving your loan. Having a good personal credit rating will be important and if you have banked with them for a long time, this can aid your chances of getting your business loan approved.
2. How much Debt your Business can Support:
Bank managers will examine your business plan, net earnings and your profit and loss accounts in great details to decide on how much debt your business can afford. Remember risk is the biggest concern for banks so they will only loan you an amount that they know you can afford.
3. Your Business Plan:
The details of your business plan will be crucial in helping your application for a business loan be approved. For example if you can show in your business plan that the loan will increase your earnings and help reduce your debt quickly then you have a much better chance of getting your loan approved.
4. Economic Conditions:
As we have already seen with the current financial crisis affecting the worlds financial institutions, economic conditions will have a major impact on how and if banks lend.
5. Creditability of your Business:
If you are borrowing for the first time for your new business then credibility will be important. For businesses who have already taken out loans in the past and repaid them successfully, they will have good credibility with their bank. For new businesses, banks will examine business plans for credibility and look at past employment and banking history. They will need to see plenty of research and a thorough business plan in place which can only help credibility.
6. Contingency Plans:
A contingency plan can be another means of improving your chances of getting a bank loan. Having a strong contingency plan in place can help to influence the banks by showing what plans you have in place should the worst case scenario happen. The bank will need reassurance that you still have some means of repaying the loan back.
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