| Small Business Loans - Convincing the bank to finance your business. |
| Written by Administrator | |
| Tuesday, 04 April 2006 | |
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There are two main type of loan that you can apply for when starting a small business, a secured loan and, wait for it, an unsecured loan. Secured loans will be secured on your home or other assets, if you fail to keep up with the loan repayments then the bank or finance company can reposes your home or assets. Unsecured loans are harder to obtain, but if you can convince a bank to lend you the money to finance your business without having to provide any security you can be pretty sure that you have a solid business plan. You may be able to get the government to guarantee your business loan if you have no assets of your own. In the UK you should look into the small firms loan guarantee scheme. The small firms’ loan guarantee scheme is run by the Department of Trade and Industry who will repay the loan should your business fail. You will pay slightly more interest than you would normally have to pay to the bank. The small firms loan guarantee scheme currently guarantee loans up to £100,000. When approaching a bank manager to obtain a loan to start your business you should remember that the bank manager wants to lend you the money, but he can only do so if he thinks that your business is a viable one. When creating your business plan and initial cash flow projections you should assume a worst case scenario, how many sales do you need to make for your business to survive? There is no point basing your business plan on unrealistic figures, the bank manager will see through them straight away. When producing your business plan do not be tempted to leave out expenses to make profits look better. Include every possible expense in the plan, bank managers want to lend money to businesses that are going to be around in 10 years time, they would rather be making a small amount of money from a customer in 10 years time than no money at all in 2 years time. 80% of small businesses fail in the first 12 months and if you want to convince a bank to lend you money you have to convince your bank that your business if going to succeed. |
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