If you want to venture in the ultra competitive and highly volatile world of business, you would need more than just nerves of steel and business know-how.
More than anything, you’ll need capital to get your start up off the ground.
Somewhere along the way, you’ll also need money to fuel growth or to merely stay afloat.
While the success of your business can be attributed to numerous factors, easy and immediate access to capital will play a huge part until you reach the break-even point.
If you need start up funding and considering getting a start up business loan, it is imperative that you ask yourself the following questions:
- How much money do you need?
- Do you own some of the assets needed to start your venture?
- Do you have friends, acquaintances, family members, or other people who are both willing and able to invest?
- Do you have lines of credit readily available?
- Do you have a robust and favorable credit rating?
Once you have figured out the essentials, your next challenge would be to decide on the start up business loan that will best suit your needs.
Below are two of the best options available at your disposal:
Long-term loans are typically used to purchase fixed assets that are used for more than a year (i.e. buildings, vehicles, equipment, machinery, property, etc.)
In most cases, these type of loans are secured by new assets, personal guarantees, and stakeholder funds, among others.
Short-term loans often have a one-year term or less and can include credit cards and revolving lines of credit.
Typically, short-term loans are used to finance the day-to-day expenses of the business (i.e. payroll, unexpected emergencies, inventory, etc.).
These type of loans also often come with a higher interest rate.
Once you have decided on the type of start up business loan to apply for, it is vital that you assess your chances of getting the nod.
The following are some of the key factors your prospective lenders will look for when evaluating your application:
Simply put, collateral refers to the value of the assets you are willing to pledge to show your willingness to repay your obligation.
An amount will be assigned to the aforementioned assets and will be compared to the amount you would like to borrow.
Understandably, before creditors part with their money, they need solid proof you would be able to settle your dues.
Your financial statements will be able to help potential creditors gauge if you have a stable and robust cash flow.
Your history with financial institutions as well as your credit score can either decrease or increase your chances of approval depending if they are favorable or not.
In most cases, sans good credit rating, your chances of snagging a loan will significantly decrease.
You can also dramatically increase your chances of getting approved by keeping the following tips in mind:
Be a homeowner.
Homeowners often already have a history of borrowing and has a large asset to their name that can be used as security or collateral.
While unfortunate to note, if you are just starting out, you are often placed in the high risk bracket.
And since they have no assurance your idea will work out, they would need to bank on the assets you own so they are assured you can pay your dues in the event of a default.
Ensure you are able to account where the loan will be allocated.
Your chances of getting approval will significantly increase if the lender can clearly see where the money you will borrow will go.
If you turn in an application and don’t have an answer as to where the money will be spent on, prepared to get rejected.
As a general rule of thumb, have an answer ready.
Better yet, have the items you will spending on itemized when possible so you will be able to convince your lender you have all the bases covered.