Every business needs money at one time or another. The procedure for gettingfinancing can be daunting as well as the chances of success limited if it is approached in a disorganized or haphazard way. Lenders are conservative critters; nevertheless it is vital to grasp that it is their job to givecash, and they are happy to do so if their risk is reasonable. The possibilities of getting abusiness loan are greatly enhanced in the event you adhere to the followingprocess.
Understand how youwish to repay the loan and how you plan to use companylending, how much funding you want. Be able to communicate this clearly and confidentlywith prospective lenders.
UNDERSTAND YOUR CURRENT SITUATION
In the event you are an existing business, are yourewarding, and does your balancesheet have positive equity? What does your credit look like? Have a thorough understanding ofany existing liens and lien priority. Understand your credit score and solutions toderogatory credit issues (liens, judgments, slow pays, group activities) beforepresenting your application. If there have been profitability credit or equity problems in the past, present a credible argument as to why these problems have beensolved or how this case will change.
KNOW YOUR ALTERNATIVES
All financing is critiqued from a risk point of view. Particularrates of danger will qualify for particular types offinancing. The degree of risk is reflected in theprice of the funding. The more secure a lender’s money is, the less it costs you.Get creative. Funding takes many kinds, and is available from a wide range of sources.
Normal (conventional) bank financing generallyprovides the very best interest rates, however it is the mostdifficult to qualify for. Such loans appear in the businessbalance sheet as a long term liability. Conventional loans areavailable through banks as well as other lending institutions and can beguaranteed in part or whole by the SBA.
Revolving Lines of Credit are another form of company lending. 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 credit line. An Asset-Based Line of Credit (ABL) is considered alternative financingand is available to borrowers that are too highly leveraged for a bank.
Unsecured loans, on the other hand, need no collateral but almost always have a higher interest rate than secured loans.
Some of these like the credit check are essential for determining the reliability of the borrower.Guaranteed loan helps borrowers in making the perfectutilization of the equity saved in his or her property that helps him in borrowing alarger amount of credit and that too for a longer loan term.
Real Property, Equipment Leases and Notes are another type of companylending. In these contracts the security for the loan is equipment or the property . Equipment leasing has become increasingly more popular with set up businesses. Flexible credit guidelines its simple acceptance process andspecific plans only for set upcompanies.
When there is no outstanding balance owed in the asset, the property or equipment may be utilized in a Sale-Leaseback transaction. Here, the asset is sold to the lender for cash, along with the property is leased by the borrower from the lending company until the loan is paid.
Landlords could be a source of funding. It is notuncommon for a landlord to provide rent concessions or dollars to the development of a tenant’s space. As repayment, the landlord mayrequire a Percentage of Gross Sales Clause in the lease for this particular loan.Lengthy vendor conditions 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 assist the borrower qualify for financing that is less expensive. Be flexible. Your closing package could be comprised of severallending options
PRESENT A CLEAR AND UNDERSTANDABLE PROPOSITION Lenders shouldknow who you’re personally, financially and professionally.The lender must 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 specific manner. The Current Ratio ought to be at least 1:1,to Equity Ratio should be the Debt and at least 4:1.
Be specific as to how the cash will be used and how it will be paid back. Lenders need to know what exactly is ensuring their debt. Lenders wish to assure that it isadequate to ensure the debt in case of default, andassess the standard of the security. A secondary source of repayment is required prior to granting normal lending. The personal guarantee of the debtor is usually required. In some situations, alender may seek secondary security. Secondary security is just another asset in which you have equity or possession, i.e. gear, property,inventory, notes. Company financing is not difficult if the borrower is realistic and creative.Know how much money you desire and the way you’re going toutilize it. Be ready to defend your needs andexpect the lender’s questions. In the event that a lender cannot give your request, perhaps it is the way a loan is packaged. Locate a creditor who’s willing to make recommendations that may help you find funding. An excellentlender will inform you instantly if they can surely help you or not. A timelyresponse is warranted, if an organized and intelligent package is presented.