Applying for a Business Loan

Learn the procedures involved in applying for a loan. There are many elements to be considered and preparations to be done. That still does not mean that your loan will be accepted.

The process of applying for a business loan is a stringent one as compared to the standard procedures in obtaining a home mortgage loan or a personal loan. This is probably due to the fact that business loans contain a greater risk element as compared to other loans. Therefore, lenders need to exercise greater caution and emphasis when evaluating business loan applications in order to minimize their risk exposure.

With that, lenders evaluate their applicants based on the information that are provided as well as their judgment of the viability and profitability of the business being financed. Thus, business loan applicants will be required to submit a loan proposal along with their applications with the purpose of creating a positive impression upon the lender.

The first element of a loan proposal is an executive summary, providing short descriptions of the type of business and the industry, the purpose and usage of the loan, the proposed repayment conditions as well as the intended loan period. After that, the company information is provided, enriching the reader with the nature of the business, the location of the business, company history, the products or services provided, key differentiation factors of the company or the product, the general growth of the industry, competitive information, growth potential and target customers.

It would help if you could include your company marketing strategy, detailed product information, historical information as well as projected growth plans for the company. Apart from that, if you plan to incorporate product or service extensions in the future, you should provide these descriptions within your loan proposal. If possible, geographical expansion plans will help in the proposal.

The next area that needs to be showcased in the proposal would be the credentials and experience of each member of the management team. Impressive credentials will provide assurance to the lender that the company is managed by individuals who are responsible and capable. This is important as having the wrong people managing the company could be detrimental for the business.

In any loan application, historical records are essential to be used in evaluating the performance of a company. As new companies do not yet have these records, the financial records of the owners will be used as the basis of evaluation. Income tax returns forms are also required by lenders. All of these records provided should be the latest copies less than 90 days old, with the exception of the income tax returns form.

If the loan is applied for an existing company in active operations, company financial statements, including profit and loss accounts, balance sheets and the net worth reconciliation record should be included in the loan proposal. Again, all of this information should also be the latest and less than 90 days old. Additionally, a listing of accounts receivables and other short term and long term debt should be attached.

On the other hand, if the loan application is submitted for a new business, a pro-forma balance sheet and profit and loss account should be provided. Apart from that, a cash flow projection for the upcoming year is drafted to indicate the possibility of recovering the debt. This also means that projected revenue, profits, costs incurred and expenditure should be listed out with definite explanations provided as well as a list of assumptions.

If you possess assets that you wish to use as collateral for your loan, details for this should be provided to the lender as well. It is often common for lenders to request for dual sources of repayment in the event that one source is defaulted. This means that if the business owner defaults on his repayments, the collateral can be sold in order to recover debt.

Finally, other documents normally required for a loan application would be items like the article of incorporation, lease agreements, partnership agreements, license, references, etc. As the list of required documentation, information and attachments differs between lenders, it is best to check with the individual lender on their specific information and documents required to be attached with the loan proposal.

Government Loans For Beginners

Government loans are those that the government of a country provides to the citizens of that country in order to fulfill there needs and for their uplfitment or betterment. This helps in reducing the wide gap between the rich and the poor and streamlines the economy of the country. Government loans almost are for all sorts of purposes like education loan, loan for purchasing a house- home loan, loan for setting a business- SBA- Small Business Loan, purchasing a car, heavy machine etc.

Government loans are broadly divided into two categories- VA and FHA. The former i.e. VA loans are quite beneficial for they require no down payment and mortgage insurance. They are under the sponsorship of the Veterans Administration from where the name is derived. These loans are provided at fixed rates which are not subject to modification. VA loans are meant only for qualified veterans and not to the rest of the public.
FHA loans can be given to any qualified person who wants it. They need a little extensive paper work and are most often opted by those who seek to purchase multi family properties since they have a seemingly low down payment.

If we do a comparative analysis of the loans provided by the private companies and banks and those provided by the government, the latter outweighs the former in many respects. The sole motive behind a private bank or company’s lending money to people is to earn profits or to accumulate more wealth. But the government works for the noble cause of benefit of its citizens. It does not seek to fulfill any private purpose but the whole idea is to strengthen the country’s economy.

It is not that the government unlike any other private company giving loan has no criteria or a set of parameters to adjudicate who all are eligible for the loan they apply for. But this criterion is often a mild one. Government at times gives loan to even those who do not have the potential to repay it. Not just this but in case of any natural calamity or disaster if those who have taken the loan become inefficient to pay it back, the government simply excuses the loan amount.

As compared to the private banks and companies the rate of interest at which the government loans are offered are significantly low. Moreover the government can provide large amount of loan for a considerable period of time. This enables one to have relatively small monthly installments and more security. Private companies in order to make large profits usually charge high rates of interests from their customers. They lure the customers by promising of instant delivery of loan amount at their doorstep and with least documentation. The government loans generally require more documents but that should not undermine their benefits. While going for any government loan the best one can do to avoid running around is to opt for a well qualified agent. These agents do all the official work (like collecting documents, checking and submitting them) by going from one office to another. The finest part is that they are not too expensive and provide you with sufficient knowledge, guidance and service at your ease.

Thus make a prudent choice, take loans through government. They can be of tremendous help since the government is always meant for the welfare of public.

Startup Your Business With A Business Loan

It is not necessary to wait until you have a lot of money to start up your business. The time is now. The market may change and make things difficult and you could be left with the bitter taste in you...

It is not necessary to wait until you have a lot of money to start up your business. The time is now. The market may change and make things difficult and you could be left with the bitter taste in your mouth of not having taken the decision at the right moment. Business is not only about buying and selling. It is about taking the right decisions at the right moment.

Do Not Let Others Beat You To It

If you have detected a niche in the market that you can fill in, go for it. Do not waste time watching to see what happens, whether it is the right moment or not. Waiting gives your precious time to others. Rushing to do things without a proper planning is not good either. You have all the ideas in your head, so just write them down, on paper or on your computer and make a checklist of everything you need to open your business.

Niche Marketing

Your first attempt should consider every nail and every sheet of paper needed to get your business going. There will always be time to cut down on unnecessary things later on. I talked about a “niche” above, because niche marketing is very interesting. Once you detect the niche and the needs it has, you tailor a product or service for that niche and you already have a market, without having to spend precious cash on random advertising. What little advertising you will have to carry out, will be specifically directed to your niche.

You will have time later on to expand and add products to your line, innovate and improve, to widen your scope, a little at a time, so as to grow steadily and firmly and surpass the critical moment. It is said that 80% of new businesses do not make it through the first year.

Start Closing The Circle

Once you have your business plan ready, you can start to think of a business loan. Considering what is mentioned in the previous paragraph, every lender knows the risks that a new business implies. So, this risk will have to be shared, in the form of the provision of some asset of yours, whether private or dedicated to the business, to show confidence in your own project.

Very few loans will be granted on the business plan alone, however brilliant it may appear, so bear this in mind and place your car, truck, a piece of land, whatever it may be, as collateral from the very beginning. Do not wait for the lender to ask for it.

Some Additional Considerations

When you start to fill in the numbers in your business plan, consider the loan payment in advance. If you take the trouble to calculate how much you need and how you will repay it, making it participate in the general cash flow, it will give the loan officer a good impression. For this, you will need to shop around and get free quotes, not to be confused with applications.

The interest rate will vary slightly from lender to lender and depending on the amount and collateral you offer, but in general there is no great difference. The main difference in these matters is your decision and how you prepare your way for your new activity.