Every business needs money at one time or another. The method of gettingfunding can be daunting and the odds of success limited if it is approached in a disorganized or haphazard manner. Lenders are conservative critters; they are happy to do so iftheir risk is acceptable, and yet it is important to grasp it istheir job to give money. The chances of obtaining abusiness loan are greatly enhanced should you adhere to the subsequentprocedure.
Understand how youwant to repay the loan and how you plan to use businessfinancing, how much funding you want. Be able to convey this clearly and confidentlywith prospective lenders.
UNDERSTAND YOUR PRESENT SITUATION
Are you really prosperous in case you are an existing business, and does your balancesheet have favorable equity? What does your credit look like? Have a clear understanding ofany existing liens and lien priority. Know your credit score and answers toderogatory credit issues (liens, judgments, slow pays, collection actions) beforepresenting your application. If there have been profitability,credit or equity issues previously, present a credible argument regarding whythese problems have been resolved or how this case will change.
KNOW YOUR CHOICES
All lending is critiqued from a risk standpoint. Particularlevels of danger will qualify for specific types oflending. The level of danger is represented in thecost of the funding. The more secure a lender’s cash is, the less it costs you.Get creative. Funding is accessible from a broad array of sources, and takes many forms.
Normal (conventional) bank financing usuallyprovides the best interest rates, yet it is the mostchallenging be eligible for. These loans appear on the businessbalance sheet as a long term indebtedness. Conventional loans areoffered through banks as well as other lending institutions and could beensured in part or whole by the SBA.
Revolving Lines of Credit are another type of business funding. This kind of loan is secured by accounts receivable or inventory and is available from a financial institution or an Asset Based Lender. Credit cards are a type of revolving line of credit. An Asset-Based Line of Credit (ABL) is considered alternate financingand is accessible to borrowers that are too highly leveraged for a bank.
Unsecured loans, in the other hand, need no security but nearly always have a higher rate of interest than secured loans.
Bonded loan helps borrowers in making the perfectuse of the equity stored in his or her property that helps him in borrowing abigger amount of loan and that too for a longer loan term.
Real Property, Equipment Leases and Notes are another kind of businessfunding. In these contracts the collateral for the loan is the property or equipment itself. Equipment leasing has become increasingly more popular with set up companies. Special plans, flexible credit guidelines and its easy acceptance procedure just for set upbusinesses.
When there’s no outstanding balance owed in the asset, the property or equipment could be used in a Sale-Leaseback transaction. Here, the asset is sold to the lender for cash, and the property is leased by the borrower from the lender until the loan is paid.
Landlords might be a wellspring of financing. It is common for a landlord to contribute dollars or rent concessions to the development of a tenant’s space. For this particular loan, the landlord mayrequire a Percentage of Gross Sales Clause in the lease as repayment.Extended seller provisions for purchase of merchandise may provide short term operating capital loans.
In the event that additional credit strength is required, loan guarantors or borrowing someone’s credit may help the borrower qualify for funding that is less expensive. Be adaptable. Your closing package may be comprised of severallending alternatives
PRESENT A CLEAR AND UNDERSTANDABLE PROPOSAL Lenders need toknow who you’re personally, professionally and financially.The lender needs to evaluate Income Tax returns (Corporate and Personal), financial statements (income statement and balance sheet) as well as a cash flow projection. The balance sheet has to look a specific way. The Current Ratio ought to be at least 1:1,and the Debt to Equity Ratio should be at least 4:1.
Be specific as to the way in which the cash will be used and how it will be paid back. Lenders need to know what exactly is ensuring their debt. Lenders evaluate thestandard of the security, and wish to insure that it is sufficient to secure the debt in case of default. A secondary source of repayment is required ahead of granting standard financing. The personal guarantee of the borrower is usually required. In some situations, acreditor may seek secondary collateral. Secondary security is simply some other asset in which you’ve equity or ownership, i.e. gear, property,inventory, notes. Business financing is easy in the event the debtor is realistic and creative.Understand how much cash you desire and the way you’re going tomake use of it. Be prepared to defend your requirements andanticipate the lender’s questions. In case your request is granted by a lender cannot, perhaps it’s the means a loan is packaged. Locate a creditor who’s willing to make recommendations that will assist you to find financing. An excellentlender will let you know immediately if they are able to help you or not. If an intelligent and organized package is presented, a timelyresponse is merited.