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Seven tips for obtaining a business loan

graphpiggybank

The author is owner and MD of Rogerson Business Services

Money tends to rate high up on the list of needs for people planning on moving into business ownership.  

Here are seven tips if you need start up financing for your business.

1. Clearly identify how much you have available

The best place to start is yourself. If you have some capital available to invest in a business this is a great start.

Other parties you approach will take you more seriously as they want to see that you have "skin in the game."  

Once your position is clear, family and friends are the next to approach. If you are telling others that they have money make sure it truly is available. There is nothing more frustrating than the following:

You approach professional lenders with a well-thought-out business plan showing a clear financials that includes a partial capital injection from family and or friends. The lender then approves the loan subject to the other parties contributing. But then the family and/or friends change their mind and all that planning has been a waste of time.

2. Work out what you need

If you need a loan for cash flow and have accounts receivable to use as collateral, use 'accounts receivable loan' as your key words and you will come across lenders that provide factoring

How much capital do you need and why? Is it to buy equipment, buy inventory, pay a franchise fee, used for a down payment on a business, or cash to fund the business operation? 

There are different types of lenders for different types of loans. Get the "why" worked out quickly so you can find the right lender to approach.

3. Research your options

There are different lenders that focus in differing areas of the market. The obvious place to start is your local bank or credit provider. Hopefully you'll have a good enough relationship to speak or be referred to the business development officer at your local branch.  

If this position doesn't exist, ask to speak with the manager.  If your bank can't help, ask for a referral to a lender that can, but make sure it's clear why you need the loan so you are introduced to the right lender.  

If you're still looking for options in the USA, the Small Business Administration (SBA) has a wealth of knowledge. Search online at www.sba.gov.  

If you still need options, search the internet but focus on keywords that are specific to the loan you need. 

Once you find some companies that can help, make sure you are comfortable working with them and research the full costs and terms of the loans.

4. Support your loan application

Wanting the money for your business won't be enough.  Proving you need the money won't be enough.  

A quality lender will want to see a business plan explaining how the loan will be used and a CV detailing ownership experience (and therefore the ability to repay the loan), education, credit history and, most important of all in today's economy, the appropriate management experience to run the business and therefore repay the loan.  

Supporting your loan application also includes looking at your credit score and credit history.  These two points are important.  If your credit score is in poor shape and the lender is comfortable with your explanation why, they may approve your loan.  

For example, if you had a vehicle accident a few years ago that resulted in medical bills that are now under control, your poor credit score can be explained.  

Similarly, before applying for a loan, obtain a copy of your credit report as often there are mistakes.  Remove these before applying for a loan so this problem is eliminated.  

5. Build cash flow projections

Lenders eat and sleep cash flow projections.  This is what they do for a living.

The stronger your cash flow projection the greater your chances of success in getting the loan approved.  If this is not your strength, get help from your accountant or someone who knows and understands cash flow projections.

6. Sell your need

Once you have the data built and ready to launch your loan application, practice your sales pitch.  Don't over embellish but be confident, know the ins and outs of why you need the loan and practice your response so you come off confident.  

The lenders aren't looking for a sales pitch but they are looking to see that if they need to escalate your loan request to higher management, you will present strongly and not have their judgment questioned.

7. Keep educating yourself

As you work through each step of this process, ask questions.  It's amazing how options appear from places you least expect because you talk to a friend who knows someone who specialises in these sorts of loans.  

Alternatively, they may not be able to help you with that particular loan, but they can help strengthen you and your application so it gets approved…which is what this all about in the first place.

Obtaining a loan or finance for a business has been very difficult.  Because the economy is stabilising and government programs are beginning to have a positive effect, loans are available as long as you the borrower, present a professional business case.


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