The prospect of asking a bank for a business loan may seem incredibly daunting; you probably envision it as a ‘Wizard of Oz’ scenario, walking into a huge room where a giant fire breathing head denies your request before you have even uttered a word. A bank manager does not breathe fire, but they will deny your request for a loan if they find you have not thoroughly prepared your reasons for wanting a business loan.
There are many other options for accessing finances; the most traditional one is requesting a loan from a bank. Banks are very strict when it comes to lending money, but do not let that stop you, it is in their interest to support new business, they just want to know if what you are selling is worth investing in. So here are some tips that might help you be confident and know that you are prepared;
1. Prepare a Business pitch
A bank will want to know what your goals are, how you are going to reach them and if they are viable. It should be clear, concise with solid facts and evidence. The plan must include the market research you have undertaken, where the money will be spent and what the expected returns are. This will give the lender a clear indication of what the money will be used for. The plan should justify the reason.
Be clear about how much money you will need and use the plan to demonstrate how the loan will benefit the business. Finally, you obviously need to know everything about your own business. The bank will want to know the in’s and out’s, what you do, who is working for you, etc.
2. Provide a Credit History
Like with any loans, a bank will want to see how efficient you are with money management. They will want reassurance that you can pay back the capital they lend you. Ensuring that you have an excellent credit history will provide them with the evidence that you can manage repayments. Knowledge of money management may also improve your chances of securing a loan; they will want to see that your business can grow or is growing. This can be done through providing details of your cash flow and profit forecasts (This can be included in your business plan), if you do have an accountant, they can provide this information for you.
3. Research is important
You will need to shop around before asking for a loan. Calculate the total cost of any loan offer and the rate of interest as this will make it easier to compare different deals. Ensure that you can provide ample evidence that your business can generate profit and make repayments on time and it is imperative that you have a contingency plan in the event that the plan becomes complicated.
You may need to be realistic about your options. There are many other routes to securing financial aid such as short term loans, peer to peer lending and crowdfunding. It is best to explore all these avenues before making a decision. In any event, a bank advisor may be able to guide you on what you need to do before asking for a business loan.
Harry Price is a free-lance writer and personal trainer. He enjoys guest blogging and travelling the country.