When your business is in its infancy, it needs a loan to grow. Yes, there are ways to start your business with very little capital, but even in the internet age you need loans for the growth and expansion of your business. Often times, new business and small business owners are afraid to borrow because they believe that repaying the same loan with interest will hamper their growth. The fact is that a loan is not such a big responsibility if you have done your homework before obtaining it. Getting a loan in a hurry without researching the market and knowing the growth potential of your business can be detrimental to your business.
Your business plan matters in a big way
Never mind the experience of your management team when your business plan is weak. When you apply for a loan from the lenders, they are trying to find reasons to refer you the desired loan. They want to be sure that the loan they send is paid back on time and in accordance with the terms and conditions established at the time of the loan. Lenders will seldom evaluate your company’s potential to repay the loan based on what you say. What they want to see is a solid business plan and that is why you need to have an impressive one. A solid business plan will consist of the following and a few more.
The description of the company
Management role and experience
An executive summary
Documented cash flow
Keep in mind that banks often look at cash flow in a documented way, and their scrutiny is not limited to what your projections are for the future but, more importantly, how you have managed things in the past. They will examine your company’s cash flow records for the past several years to see if the loan you are applying for should be granted to you. So, keep your business plan in mind and make sure you’ve worked through every aspect to present something impressive to investors.
Your loan options are many
Sometimes you have a solid business plan and everything else is in place, but your understanding of loan options is not the best. Many small business owners live with the impression that the only institution they have access to for a loan is a bank. That’s far from the truth because there are dozens of other ways to get the loan or investment for your startups that are much easier to manage than a bank loan. Some of the options available to you include government SBA loans, bill financing, commercial equipment financing loans, etc. If you are just a startup and none of those options seem viable to you, there is online fundraising.
Online fundraising has become quite a popular method of obtaining investment for your startup from people who trust your business idea and concept. By using the financing website, you have access to hundreds of thousands of investors located around the world who are willing to help if you can convince them with your business plan and the team behind your project. So avoid making the mistake many small business owners make when they think the bank is the only place they can get money for their business.
Your time to apply for a loan is important
This is a huge mistake that small business owners often make and pay the price of not being able to get the loan they want on the terms they want. Look, you will always be told to have a solid business plan because that is the only way investors will trust you as an entrepreneur or businessperson. When you create your business plan, you are not just jotting down random numbers on a piece of paper. Your plan should give you an idea of what your business needs will be in the near future. That’s when it makes sense to apply for loans well in advance and not at the last minute.
When you apply for a loan at the last minute, you are seen as a troubled business. Most investors will see your business as a sinking ship and will never want to get on it. Obtaining a loan in these circumstances can become almost impossible. This is why you should apply for a business loan early and not exactly when you need it. You should also keep in mind that the loan approval process also takes time. If you need cash urgently, each day that passes through the approval process is causing more damage to your business.
The right people can make a difference
Delegating responsibilities to the right people is an art and skill that not many entrepreneurs have. Small business owners are often overconfident in their own abilities and afraid to trust someone else to do things for them. This can be a serious mistake because you cannot be the owner and master of all trades at the same time. For example, you may be great at calculating numbers and making accurate projections for business, but not great at sales and idea presentation. If you need to present your business idea, marketing and reach to investors, choose the person who can best present it. Despite your excellent business plan, you will not be able to get a loan due to your nervousness and lack of confidence in acting like a smart salesperson.
You have to keep in mind that investors are not only investing in your business, they are also investing in you. It is very important that they like your personality to invest in your project. Appearing unprepared or nervous in front of them will send the impression that you are not in a position to lead the project, your decision making is flawed, and that you cannot create strong teams.
A well-prepared presentation can win hearts
It doesn’t matter who’s giving the presentation when the content is boring and doesn’t address the points investors are most curious about. First, clarify your numbers and introduce them into the presentation at the correct points. Be the investor in your mind and think about the questions you would ask if someone introduced you to the same product / service. Have your accountant, advisor, and business attorney by your side when preparing your presentation. You don’t want to give the wrong numbers during the presentation and get a bad deal at the end. The most important thing is to explain your business idea as clearly as possible. Many times the presentations are so varied that investors cannot understand it. If they don’t understand your business, they will never invest.
So keep in mind that getting a loan is not that big of a challenge. Most of the time, it is only a few small mistakes in the areas mentioned above that become the cause of lost opportunities to get the right loans for your business. Create a solid business plan, choose the right people to represent your business, and use all available options at the right time to grow your business at the rate you want.