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Getting a loan for a small start-up business is hard work, especially considering the economy and the financial market today. Banks and financial institutions do not give loans to businesses which may close down in a few months. There are a few banks which are actually interested in giving loans to small start-up businesses. Since there is a lot of risk involved when lending money to new and small businesses, the interest rate is higher than the prevailing market rate as the bank may not get back the money lent to the business if the business goes bankrupt.

Nevertheless, it is not all doom and gloom, since most banks and financial institutions prefer providing loans to small businesses, as it helps the economy and the community. There are certain steps which have to be met by the business in order to acquire the loan and guarantee proper financing for their business. Here are some tips which will help you acquire loans for your small start-up from banks and financial institutions:

loans and financing small

Research about Different Banks and Financial Institutions in Your Area

This is the first step to undertake if you want to request a loan for your business, since it will give you a pretty good idea about which banks and financial institutions provide loans in the market to small businesses like yours.

It is important to realize that financial institutions and banks have different terms and conditions on which they offer loans to small businesses like yours, and proper research will allow you to tackle them more efficiently. Finally, acquire the loan from banks and financial institutions which are experienced and well established in the market, since they will be able to give you good financial advice and loan at better terms which will not challenge you in the near future.

The goal of seeking a loan for your business is to enhance and improve your business, while making sure that it survives in the industry. Get help from banks and financial institutions that help small upstart businesses, and make sure that they survive in the market and the industry. This will facilitate you in ensuring that your business is healthy and thriving, while you do not get your head under water, trying to pay the loan back.

Develop a Strong Business Plan for the Market in Your Industry

Small businesses that do not usually have a strong business plan and long term vision of success in their industry, and hence rarely qualify for loans from banks and financial institutions. In order to get a loan from the banks easily, you will have to get a firm grasp on the market in your industry and identify the  route success and its survival of your business in the industry.

This will improve your chances of acquiring a loan, since banks and financial institutions will have more confidence in giving out the loan to a small start-up business that has realistic goals and achievable plans of ensuring long term survival.

The main goal of a loan is to provide support to the small business in the initial stages, so that the business can compete in the market with its direct competitors. You should prepare a three stage plan, which takes into account

  • The Best Case Scenario
  • The Most Likely Case
  • The Worst Case Scenario

Be prepared to pitch on all these scenarios and give definite assumptions on each of them, since it will show the banks and financial institutions the whole picture and your business plan in terms of company vision. This will allow them to have more confidence in your business and may lead you to a successful loan acquisition.

Think like the Banks and Financial Institutions

In order to get a loan from banks and financial institutiopns, you will have to realize all the risks your business will face in your industry. Risk analysis is done by banks and financial institutions to get an estimate on the chances of survival for small start-up businesses before they give them loans.

It is essential that you take all the risks your business may encounter, and have alternate plans to counter them, since it will show the banks and financial institutes that you have got all your bases covered and are a safe bet for a loan.

Establish two Different Ways to Pay Back the Loan

Most banks and financial institutes will look to find out ways in which you can repay the loan, and they invariably grant loans to businesses that have a primary and secondary method of paying back the loan. It is important that you develop two different ways in which you can repay the loan to the bank or the financial institution giving you the loan as it will effectively guarantee that your business will get a loan.

Banks and financial institutions are looking to give loans which are in their best interests and a loan is a significant investment for them. The more confidence that a bank will have in your business plan and repayment options, the more likely it is to provide a loan for your business. Be smart when dealing with banks and financial institutions and take care of all the risks, since it gives them more trust and increases your chances for a loan.

Never Ask for Loans that have to be funded with Equity Injections

Banks and financial institutions do not care for equity risks and will not grant loans to small businesses that ask for loans which will be repaid with equity injections. The reason for that is that the market is unpredictable and does not provide the whole picture of the risks involved in the equity required to run businesses.

Different businesses have different equity requirements; you have to understand the operating expenses and equity requirements of your business before requesting for a loan. This will enable you to ask for a loan that is manageable and easily payable without equity injections. This will ensure that the banks and financial institutions have more confidence in your business and provide you with a loan which is easily manageable with the business plan and model of your small upstart business.

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