Sometimes it happens that a person needs a lot of money urgently to implement a project, for example, to start a business. You have a great idea, you feel that it is profitable, but you have no money to implement this idea…
Where can I get money to start my own business?
How to get a small business loan from scratch?
The path to a start-up loan begins not with a visit to the bank but with preparation.
First of all, you will need to:
- Prepare a business plan. A detailed description of the project and directions of its development will be needed in any startup. Potential investors draw up a picture of the business and decide whether to invest in it on the basis of this document. It is recommended that the business plan includes all accounting calculations, market overview, work plan and loan repayment schedule;
- Determine the collateral. Of course, in theory, you can get a start-up loan only having a business plan, but in practice, banks are wary of entrepreneurs who do not have real estate, a car or other valuables that can act as collateral. The businessman also should not forget that the loan will have to be repaid – and even with rather big interest. Therefore, before going to the bank for a loan, you need to take care of your own “safety cushion” – money savings or property (real estate, car, securities and shares);
- Register an individual entrepreneur or LLC. To get a business loan, you will need documents confirming that the person is registered with the tax office as an entrepreneur;
- Select a bank. You need to study not only the rates of banks but also reviews about them. Only clients of the institution directly can tell about all the pitfalls of service.
When the preparation is over and the bank is selected, you can apply. This can be done at a bank branch or online.
You can get a loan for business in the bank:
- Fill out an application form, which contains information about the entrepreneur and his/her intentions regarding obtaining a loan;
- Choose a loan program for starting up or for developing a small business;
- Collect documents;
- Submit documents to the bank along with the application for a business loan;
- Pay off the initial payment, or issue a pledge of valuable property;
- Get the required amount and start your own business.
Most banks today accept loan applications online. For this, you will need:
- Go to the bank’s website;
- Find the section “Loans for Small Business”;
- Fill in the form;
- Indicate your phone number;
- Send the application for consideration and wait for an answer.
Loan approval conditions for starting a small business
A loan agreement between a bank and an entrepreneur carries risks for both parties. The lender will not be happy if the borrower gets money and cannot pay off the debt. Therefore, before getting a loan, the bank finds out the following information:
- what amount is required and for what needs;
- the entire amount is needed by the borrower at once or in several payments;
- what profit is planned for the enterprise, how stable is it;
- what is the planned income of a businessman;
- whether there is a bad credit history.
How to get a loan approval?
When an entrepreneur comes to a bank to get a loan for a start-up in the small business sector, the specialists of the financial institution require certain guarantees from him or her. These include:
- Good credit history. If a businessman has overdue or outstanding payments, the chances of getting a new loan are reduced to almost zero. Financial institutions prefer not to deal with unscrupulous borrowers;
- Collateral is an indicator of a serious approach to a loan. It is better to think in advance about what can be provided to the bank as collateral and stock up on documents confirming the ownership and value of the property;
- Competent business plan, reflecting confidence in receiving a stable income;
- Parallel income. If an entrepreneur is employed in a stable job or has other income that does not depend on the new business, then his or her chances of repaying the loan increase in the future;
- Surety. The borrower can be vouched for by an individual or legal entity with a favorable credit history;
- Starting capital is more than 25-30% of the required amount. It does take some savings to start a business. Starting a business with a loan is always risky, and you should not expect that the bank will give you a loan for the full amount requested – you still have to invest some personal funds;
- Franchise. Banks are more willing to lend funds to open a trusted brand than to start a completely new venture. Therefore, it is better to think about buying a franchise, this will increase the chances of getting a loan.
There are other factors that also increase the chances of successfully getting a small business loan:
- age 30-45 years;
- permanent registration at the place of residence;
- owned real estate;
- no criminal record;
- registered marriage.
Who makes a decision?
The main task of the bank before approving a loan is to assess the risks and reliability of a particular entrepreneur. To avoid further problems with debts, banks use two main methods:
- expert review – a subjective decision made by inspectors of a financial institution;
- automated scoring system – the operator enters the client’s data into the program, fills out the questionnaire, all further analysis takes place without human intervention.
Some banks use two methods at once, which makes the verification even more thorough.
Features of small business lending
Why is it so important to get exactly a loan for a small start-up business? The fact is that all credit programs are developed specifically for certain needs, which means that they take into account the client’s needs as much as possible. Likewise, lending to startups in small businesses has its own distinctive features.
- Higher loan amount (compared to a consumer loan);
- The issued funds are most often transferred to the banking account of the entrepreneur;
- Higher interest rate;
- Collateral and guarantors are important;
- Life and collateral insurance is required.
The bank refused to give you a loan – what to do?
All plans for starting your own business can collapse if the bank refuses to give you a loan. In this case, you can contact another bank, but no one can give guarantees that they will make a different decision.
Important: when checking the credit history, the bank will certainly receive information that the data on the borrower has already been requested by another bank.
It is also very difficult to work on errors since according to the law, a financial institution is not obliged to substantiate its refusal and voice its reason.
But even if the bank refused to give you a loan and it is not possible to change their decision, this is not a reason to give up. There are other ways to teach money:
- Consumer loan. The amount of loans for the needs of individuals is less, but it is easier to get them. Some banks do not even check the borrower’s credit history (in exchange for high interest rates), which means that you can take several such loans at once;
- Non-bank loan. If the credit history is too bad even for getting a consumer loan, then the option remains to apply to a non-bank organization that has the right to give loans to individuals. However, they offer small amounts for shorter periods and at high interest rates – in a word, on the most unfavorable terms for an entrepreneur;
- Small business support funds. Each state has its own commercial centers that finance outstanding business projects. However, in order to achieve such help, a business idea must be truly original and profit-able. It can be new production, agriculture, education, tourism and ecology;
- Broker services. For a fee (up to 15% of the loan amount), an experienced broker will analyze the needs and capabilities of the entrepreneur and select the best offer for him or her. The broker will also help in evaluating the loan;
- Partnership with a large company. You can find a patron who will help with funding.
Category: Online Loans
Tags: fundraising, loan, payday loans, speedy loans, Startup