Most of us have at some point in our lives considered being masters of our own destiny as far as our earning capacity is concerned. Owning your own business can be a very rewarding experience, however the majority of us never actually take the plunge mainly because of lack of finance. In most businesses, finance of sorts is required, simply because you have to produce your products or services first before someone is prepared to pay you for them.
In producing those products or services you have to spend money which may not be readily available in your business and that is why you have banks, investors, moneylenders etc. Even as you expand, further finance may be necessary to support any activity that may increase before you make the sales and get paid. Your business can go bust if it does not have the appropriate finance arrangements in place to deal with expenses that need to be paid before your customers pay you, even if your business is profitable. You need to try to match the appropriate source of finance for what you are trying to achieve.
In general – long term finance for long-term investment and short-term finance for short-term working capital requirements. It is really important that you apply for the correct finance type for your business. Get The Right Business Loan Approved For Your BusinessBanks are the major source of finance for small business owners throughout the world. When applying for finance from your bank it helps if you follow these procedures:
Always produce a complete business plan. If your business plan is compiled for you by your accountant or a third party, make sure that you can explain the business plan without the person who prepared it is present. Remember, the bank want to lend you the money, NOT the person who prepared your business plan and cash flow projections.
Always prepare a clear, succinct 2-page summary of the business plan. This allows your potential lender a quick insight into your business and quickly give you an indication whether he/she is interested in going further with you.
In your business plan always ask for a 25% longer repayment period than you need and between 30-40% more money than you need. It gives you room for tweaking your business should your business not go according to plan and believe me, this happens to many businesses no matter how superb their initial plans are.
Send your business plan to banks with an invitation for them to visit your premises. Make sure that you prepare your staff before the bank manager comes to your premises.
Think of the questions that are likely to concern him and have your answers prepared. Always negotiate the interest rate and terms after the offer has been made, not before. Try, by all means, to avoid personal guarantees but if you have to give them ensure they are limited to the amount of the loan. Do not agree to too much security – only agree to the bank’s maximum exposure to loss.