Every business needs money at one time or another. The method of obtainingfinancing can be daunting as well as the odds of success limited if it is approached in a disorganized or haphazard manner. Lenders are conservative critters; however it is crucial to grasp that it’s their job to lendcash, and they are happy to do so if their risk is acceptable. The likelihood of getting abusiness loan are greatly enhanced in case you adhere to the followingprocedure.
UNDERSTAND WHAT YOU NEEDComprehend the way youintend to pay off the loan and how you want to use businessfinancing, how much funding you want. Be able to convey this clearly and confidentlywith prospective lenders.
UNDERSTAND YOUR CURRENT SCENARIO
Are you rewarding in case you are an existing company, and does your balancesheet have positive equity? What does your credit look like? Have a thorough understanding ofany existing liens and lien priority. Know your own credit score and solutions toderogatory credit issues (liens, judgments, slow pays, collection activities) beforepresenting your program. If there have been credit, profitability or equity problems before, present a credible argument as to why these problems have beenresolved or how this loan will alter this situation.
UNDERSTAND YOUR CHOICES
All financing is critiqued from a risk point of view. Certainrates of risk will qualify for particular kinds offunding. The level of hazard is reflected in thecost of the financing. The more secure a lender’s money is, the less it costs you.Get creative. Lending takes many kinds, and is available from a wide selection of sources.
Conventional (standard) bank financing generallygives the best interest rates, nevertheless it is the mostdifficult to qualify for. Such loans appear as a long termobligation to the business balance sheet. Conventional loans areavailable through banks as well as other lending institutions and may beensured in whole or part by the SBA.
Revolving Lines of Credit are another kind of company funding. Such a credit is secured by accounts receivable or inventory and is accessible from a financial institution or an Asset Based Lender. Credit cards are a type of revolving credit line. An Asset-Based Line of Credit (ABL) is considered alternate financingand is available to borrowers who are too highly leveraged for a bank.
Unsecured loans, in the other hand, need no security but almost always have a higher interest rate than secured loans.
Guaranteed loan helps borrowers in making thebest utilization of the equity stored in borrowing alarger sum of loan and that too for a longer loan term in theirproperty that helps him.
Real Property, Equipment Leases and Notes are another type of businesslending. In these contracts the security for the loan is equipment or the property itself. Equipment leasing has become more popular with set up businesses and more. Its easyapproval procedure, flexible credit guidelines and uniqueprograms just for set upbusinesses.
When there isn’t any outstanding balance owed in the asset, equipment or the property could be used in a Sale-Leaseback transaction. Here, the asset is sold to the lender for cash, and also the property is leased by the borrower from the lending company until the loan is paid.
Landlords might be a wellspring of funding. It is common for a landlord to contribute rent concessions or dollars to the development of a tenant’s space. For this particular loan, the landlord mayexpect a Portion of Gross Sales Clause in the lease as repayment.Lengthy vendor conditions for purchase of merchandise may provide short-term operating capital loans.
In the event that additional credit strength is needed, loan guarantors or borrowing someone’s credit may help the borrower qualify for less expensive financing. Be adaptable. Your final package may be comprised of severallending options
PRESENT A CLEAR AND UNDERSTANDABLE PROPOSITION Lenders mustknow who you’re personally, professionally and financially.The lender needs to assess Income Tax returns (Corporate and Private), financial statements (income statement and balance sheet) as well as a cash flow projection. The balance sheet has to look a certain manner. The Current Ratio should be at least 1:1,and the Debt to Equity Ratio should be at least 4:1.
Be specific as to the way the cash will be used and how it’ll be paid back. Lenders desire to know what exactly is ensuring their debt. Lenders wish to assure that it’ssatisfactory to guarantee the debt in case of default, andassess the caliber of the collateral. A secondary source of repayment is required prior to granting conventional funding. The personal guarantee of the debtor is usually required. In a few situations, alender may seek secondary security. Secondary security is simply another asset in which you’ve equity or possession, i.e. equipment, property,inventory, notes. Company funding is simple enoughif the debtor is creative and realistic.Understand how much money you need and how you’re going toutilize it. Be prepared to defend your requirements andanticipate the lender’s questions. In case that your request is granted by a lender cannot, maybe it’s the way financing is packaged. Find a lender who’s willing to make recommendations that can make it easy for you to find funding. A greatlender will tell you quickly if they could surely help you or not. A timely answer isjustified if an organized and intelligent package is presented.