Business-people always say that access to funds is the life blood of any company. Going out and securing outside financing to help grow a business is an important step in the life of an emerging organization. Keep in mind, the process of commercial borrowing is best done in preparation for needing the capital, rather than when the request is made in a dire situation. Here are some necessary tips to keep in mind when preparing to seek a loan.
- Bookkeeping – Install accounting software so you can produce up to the moment financial reports including Balance Statement and Profit Loss Statement. These reports will give the Lender a snapshot of the current financial condition of the company. It also assures that you know enough about accounting to understand the internal cash flows.
- Customer Credit – Show you have a process in place to check the credit of all your customers. Learn how to avoid issuing credit for more than they are qualified. Sales to customers are what business is all about. Knowing the difference between a solid customer and a bad credit is crucial to long term stability.
- Borrowing Amount – Know how much capital the business requires to operate. Whatever the business does, whether provide a service or sell a product, you must be aware of the profit margin on these activities. You should have a solid business plan in place with budgets where you can determine the potential short fall and take precautions through financing.
- Purpose – Your business plan needs to be able to show a purpose for using the capital. This must be very specific. The more details you can provide on where the loaned money will be employed, the better the Lender can determine the viability of your plan. By admitting potential problems and offering contingency suggestions, your business plan will have added dimension.
- Repayment – In the business plan, give a reasonable timeline for the repayment of the loan. Preparing cash flow performance will show the road map to ultimate success and profitability. Again, incorporating contingency budgets will help to mitigate potential risk.
- Team – Make sure the owners, managers have strong bio’s and thorough knowledge of the industry. The Lender must have confidence that the operators of the business plan can perform based on their experience.
- Loan package – Do your homework, and put all this together with your business plan into a binder so a lender can easily see who, what, where, how this company will deal with a loan. By being pro-active through the entire process you will become a more attractive prospective client to a Lender, and therefore will have some bargaining leverage with regards to the terms of the loan. It’s always a good idea to get involved with a professional to help you through the process.