Availing a business loan might just be the best decision you took for growing your business in the right direction. Business loans are usually taken out to finance major expenses, such as the expansion of operating facilities, the purchase of new or used equipment and anything that furthers your business. Availing a business loan helps cover your long term financial needs while conserving your liquid assets.
Creditworthiness of your business is determined by.
Capacity: Before availing a business loan, ensure that your business plan demonstrates your business’s ability to repay the loan. Tip: your business needs to have 1.25$ of income for every 1$ of loan availed. The 25 cents is allocated to absorb any unexpected expenditure and economical failings.
Capital: Providing some amount of capital is a prerequisite to being eligible for a business loan. Capital can be provided by your savings, loan again your house or other sources. The capital assets your business might own, such as real estate or equipment, might interest the lender in proving you a loan.
Collateral: Providing a collateral ups the probability of getting approved. Collateral can be property (loan request should be for less than 80% of the property’s value) or inventory, accounts receivable. Lending institutions consider the value of the collateral as well as any existing debt you might still owe on it.
Conditions and Character: Provide proof of your experience in your industry, your ability to run your business and most importantly that there is market for your business. Your educational background, your general impression on lender and personal credit score are used as indicators to your repayment capacity. The state of the economy and the trends in your industry are external factors which also determine your repayment ability.
Open communication with your lender about the opportunities and challenges in your business, create a productive partnership between the lender and you.
Starting a business or applying for a business loan must be preceded by having a detailed business plan. Your business plan must ideally be charted for 3-5 years and it should be reviewed and revised if necessary as the business grows.
Surround yourself with the right professionals. It is imperative to have an accountant who specializes in your business. Having the right people with sound knowledge are assets you are building which will provide you with the impetus to run your business. Registering your business and determine the legal structure of the business (with the help of your accountant and lawyer) are the administrative loops that need to be tied up. Upon completion of all this, you are now eligible to apply for a business loan