Big ideas and fresh innovations are two of the most crucial components in the success of a business. If you have a great product and service in mind, but does not have the financial means to actualize your grand master plan, it will be but very difficult to start your own business venture. Thankfully, financial institutions such as banks and lending companies offer business loans which function to provide the necessary funding for budding entrepreneurs to make their dreams into reality.
In these financially-embattled times, the process of borrowing money from lending firms has become very challenging among business owners. The recession has made it difficult for prospective entrepreneurs to find potential investors that can back up their business plan. But with preparation and a solid business strategy, the chances of getting a business loan approved is promising altogether.
As a business owner, you can find source of capital funding from the following entities:
Traditional Banks offering Business Loans
This is the first place where business owners seek for a loan. Banks used to be more lenient on their lending practices, but since the recession, majority of banks have implemented strict underwriting guidelines making it next to impossible for applicants to get approved of a business loan.
There are many advantages to requesting a business loan from banks. For one, the interest rates that bank assess on business loans are comparatively lower when compared alongside those imposed by competing lending agencies. The repayment scheme formulated by banking institutions is easier to work with as well.
There are also potential drawbacks in getting approved of a business loan offered by banks. For one, since banks have started imposing strict underwriting rules, they will request for several documents to be submitted during the application process. In addition, processing of business loans by banks may take longer than usual, and this is due to the fact that many business owners like yourself are vying to get approved of a loan as well. Since banks know that everyone is clamoring for their approval, they are more careful in choosing which requests to approve and which ones they will dismiss altogether.
Another potential drawback of getting a business loan from banks is that the loan they provide is recourse in nature. This means that in the case of default, banks have the right to seize a business owner’s personal assets and properties to cover for losses.
Before getting a business loan, it is sensible and practical to shop around. Choose between three to five banks, and look closely at the terms and conditions of their business loans. When applying for a business loan through a bank, here are some important pointers that you may need to follow:
Prepare financial documentation that they may need to process your application
If you are a startup business, your personal statements will be required by banks. They may also want to check out projected values that you wish to attain once the business is up and running. Prepare to be asked a multitude of questions when applying for a business loan. Make sure that you are prepared with discussing about numbers and your plans on how to achieve such values in the future.
Be knowledgeable about your business
Banks will most likely approve of your business loan request if you can provide them concrete answers on how you plan on growing your business and how you can pay off the loan with them. Bankers need to feel secure that you are financially stable to sustain the business and cover for losses if and when the business fails in the future. During the interview process, bankers need to feel a high level sense of security before even considering any approval for your request.
Present an outstanding financial track record to the bank
Creditworthiness can be measured in terms of your success in paying off previous loans in full. Banks are more than happy to lend money among individual business owners that showcase creditworthiness in the form of zero debt and paying off major financial loans in the past. If you are going to borrow from the same bank you have personal accounts with, your track record will them is more than enough for them to evaluate your behavior in making payments or keeping your finances in order.
Another great source of capital investment is that of business loans being offered by the government. Just like banking institutions, the government is known to impose lower interest rates on business loans. Since business loans from this channel comes from government budget, the chances of getting approved is slim to none as well. This is most especially true among business owners which have incomplete financial papers and have no solid financial track record yet. Aside from affordable interest rates, government loans are unique in that they offer longer term repayment scheme, making the business loan payments more affordable.
Borrowing money from family and friends
This source of funding may seem ideal for some, but in reality this is the hardest method to get money for business capital. Since you are going to borrow money from someone dear to you, non-payment of debt may create problems between you and your family. If possible, do not borrow from family members as you may ignore paying the debt in time since you are dealing with people whom you actually know. You will be more lenient in following business loan terms imposed by a loved one since you may feel that you can simply pay them later than sooner.
If you need cash immediately, you will find that home equity is proven to be the most common and most effective means of obtaining money with little to no effort. Before using your mortgage in applying for a loan, think carefully if you can risk the chance of losing your home if and when your business goes into default.