Don't Let Mistakes Cost You Your Small Business Loan
Hugh Tyzack is the founder of GBP Loans, where he is also the Managing Director. His firm specializes in providing consumers and business with no fee Guarantor Loans. More information about the loans he offers is available on his website. While not working, Hugh is an avid music fan and pianist. Keep up with Hugh on Twitter @GBPLoans and also on Google+.
Anyone who has ever even considered starting their own small business knows one thing – it is almost always an expensive process. Many people save for years in order to be able to follow their dream, and even then, founding your company oftentimes requires obtaining a small business loan. While these loans were created to help small businesses succeed, acquiring them can be much more complicated than a simple personal loan. Here are five things that you need to keep in mind so you don’t make any mistakes that can cost you your small business loan:
Have a Solid Business Plan
You may know that your business model is bound to rake in the profits, but unless you are able to properly convey that to your lenders, how will they know? You’ve spent countless hours researching and understanding your new company – how can you expect them to get a formidable level of comprehension is a very short time? Through a solid, well prepared business plan. The point of this plan is to provide your lenders (or investors) with all of the relevant information needed to show that beyond a shadow of a doubt, your company will succeed and become profitable.
Get Your Credit in Check
Many times, entrepreneurs get so wrapped up in their business plan and how exciting and revolutionary their business model is, that they forget how much of a role their personal credit can plan in obtaining a loan. Unless you have substantial assets to offer as collateral for the loan, a new company’s credit worthiness will be judged by its management – you.
While you are planning to get your new venture off the ground, take time to ensure that your credit is at an appropriate level, and make improvements while you have time.
Choose the Right Lender
Not all lenders are created equal. Instead of making a decisions based on marketing, look at the qualifications of the lending institution and how they can help you. Business lending is much more intricate and complicated than traditional personal loans, and requires a much more specialized touch. Choosing a lender who is not ideal for your type of loan may end up costing a lot in fees and interest in the long run.
Bring Something to the Table
When starting up your own company, do not underestimate the importance of making a strong financial contribution. Oftentimes, business owners consider the blood and sweat that they pour into their businesses as substantial equity, and it is, but not from the perspective of a lender. When it comes to your small business loan, money and profitability are at the forefront of their mind. By bringing something to the table – an equity contribution to your business – lenders will consider you having much more of a vested interest in the success of your venture. This sense of commitment goes a very long way when it comes to obtaining funding for your start-up.
Don’t Borrow Too Much Money
One last thing to watch out for, which can cost you your loan and potentially your company, is to not borrow more money than you will need. Many new companies overestimate how much capital they need in order to feel “safe”, and also how much revenue they will bring in at first.
By borrowing too much money, these small companies are creating huge liabilities for themselves everymonth. When revenue isn’t at the level they anticipated, they may start having troubles making their payments. From there it is just downhill. Ensure that your small business loan fits into your monthly budget, even if sales start off lower than you hope them to.
Starting your small business can be a complicated and time-consuming process. By making sure that you’re prepared with your small business loan, you can avoid headaches, secure the funding that you need to get going and spend more of your valuable time with the aspects of your growing business that demand your attention the most.