The start-up costs for a new business can be considerable which are the purchase of goods and equipment, marketing costs, payment to the employees and thus the list goes on. It’s not always feasible to bootstrap the way through major expenses, and the businessman may want to consider external funding. Loans from the commercial lenders like banks or the private lending institutions may thus be an option, but the borrower should consider the pros and cons of seeking a commercial loan. The article tells us about the tips which a person should take into consideration before applying for a business loan.
The tips are:
- Know your business inside out
From a lender’s point of view, it’s thus a massive alarm bell when a business owner or the manager stumbles on the straightforward questions which the clients ask about the business. Convincing someone in order to invest in the business for a period of time is even a harder task than selling something which they could use immediately. You should thus feel comfortable in talking about all the aspects of your business, including its past performance, the present challenges, and the plans for future, ideally in an engaging manner.
- Keep your records up to date
There’s never enough hours in the day for the small business owners to complete their 101 tasks, but when a lender is, however, assessing the business they would expect to receive the latest records, like bank statements, the statutory and management accounts, proof of the revenues, contracts, etc. Therefore it’s thus essential that the latest copies of these can be provided quickly and preferably in a decipherable format.
The best advice is thus to keep all the records current and readily available. That way the businessman is not required to scramble to compile everything at the last moment.
- Have a plan and know the purpose
Knowing and then being able to present the details behind the purpose of the loan is thus important to any lender, as it would be to anyone who is parting with their cash. The borrower should have a clear plan of how the money will be spent, and how this will support the growth plans.
- Communicate honestly and openly
This is as important as ensuring the fact that all the records are in order and they are up to date, as well as are knowing the amount and the purpose of the financing which the borrower is seeking. Once the borrower has selected your lender and has submitted his application, he should then treat ongoing communication with them as the top priority. The borrower should respond in a timely manner and then manage expectations of any materials which the borrower is preparing. The discipline with which the borrower handles the application process is often indicative of the repayment discipline, so he should make a good impression.
- Don’t over-commit yourself
Many of the businesses tend to over commit themselves financially very early on. This may thus cause problems later down the line when the borrower is trying to obtain further credit. Every time the borrower takes out finance, he must think about the long-term impact of the terms which the borrower is agreeing to on the company and its assets, and he must ensure that it works with the future plans which the borrower has for developing and growing the business.
The businessman should thus keep in mind the above-mentioned tips before applying for a business loan.