In these difficult economic times it is very difficult to acquire bank loans, business credit cards and personal Loans. It often happens that many end up financing their businesses through their own personal pockets. Some use their personal savings, while others other get hold of finances from their friends. Some from banks and others from merchant companies.
Banks pose many questions, and after delaying the applications process, reject the application completely. There are a few points that every business owner needs to consider before setting off for acquiring funding. You need to consider the following things:
Do you need the Capital?
In today’s tightening credit market, commercial bank loans and credit lines are difficult to come by, especially for small retail businesses and restaurants. Always create a checklist for your options, create short questions and answer each question accordingly. Such as, do you need the loan? What amount do you require? Where and how will you spend this entire amount? And how you plan to repay the loan?
All financial institutions wish to know how exactly you will pay back the loan before they approve it. Cash flow refers to the income your business generates versus the expenses it uses to generate production cost.
Often investors or financial institutions are interested in knowing about the amount you invested in the business. No one can understand your business’s financial needs more than you yourself. Also, even before going to investors, every small business owner should invest his/ her own money in their business. You might lose your money but this will only save you from paying back the investors their capital.
What is Collateral?
In easy terms collateral is the heavy machinery or an asset which is used by the loan provider or any other expensive asset, which can be sold off in order to repay the default payment. If a small business owner guarantees his personal asset on a business loan, then it means the loan provider can sell that asset off in order to recover his debt. Some financial institutions do not ask for collaterals, such as Merchant Advisors.
Personal history is one thing on which no financial institution compromises on. You have to make your mark and impression of a reliable business owner in front of your lenders so that they know they can depend upon you. Background information on business history, personal credit history and education are extremely important in this respect.
Connect with more small business professionals who have already gone through this situation, and learn from their experience. Ask for their advice, they are one of the best options to seek guidance from.