We all have had some small business ideas that we think can be successful but we don’t take them seriously, most of the time because of the financial restrictions that come with them. This is completely understandable because the most important aspect of any new startup is whether you have enough funds to finance it or not. While there are options of financing your small business like borrowing from friends and family or finding a private investor, they all have their drawbacks. People who have had successful startups and small business owners generally agree that getting a bank to lend you a start-up loan is your safest bet, since not only you’ll be retaining all equity in your company, and the bank won’t have to say in how it’s run, but you’re guaranteed the money for the whole term if you manage to get the loan. So, here is a small guide on how to successfully get a bank loan for your small business startup.
1) Preparing a detailed business plan
The single most important thing in convincing the bank to lend you a start-up loan is preparing a detailed business plan. Lenders will be understandably hesitant to finance a start-up if they don’t have enough information about your business to get off with. A detailed description of your business strategy will give the impression to the bank that you’re a responsible business owner dedicated to making your small business a success. Your business plan should include the market research that you’ve done and why you think your business will be successful. It should also include your sales track record if available and how you will validate your idea.
2) Having an accurate estimate.
The last thing you want to do while trying to secure a bank loan is ask for too much. You’re business plan, and other important factors may be in line but if you have overestimated the required amount you may not be able to get the loan, since the bank will be able to judge the actual amount needed based on your business plan. To have an accurate amount estimate, you need to calculate the bare minimum needed to get your business up and running, since studies have shown that banks are more likely to give out a loan if the amount asked is not too much.
3) Having a good credit score.
Since you’re a start-up founder, you might not have any established business credit history so banks will look at your personal credit. This is one of those things that you’ll already need to have beforehand if you want to secure a loan. Even if your business plan is detailed and convincing and your estimated start-up cost isn’t much either, that won’t mean a lot if you have a bad credit score. Banks make the final decision keeping your credit score in mind. If your credit score isn’t where you want it to be, take the necessary steps to improve it.
This is one of the most overlooked aspects in trying to secure a loan. Your documents may be in order and convincing, but if you want to have a better chance of securing the loan, you’ll need your pitch to demonstrate your enthusiasm for your business idea and the plans you have for it. Your pitch should also convince the bank that you’ll be able to make the repayments.
David Simmons is a financial analyst and accounting expert. He has in-depth knowledge about setting up small businesses as well as creating profitable investments. He regularly contributes articles related to business and loans at https://www.ebroker.com.au/.