Top Factors That Can Impact Your Startup’s Finance Approval!
You may have a great business idea, a clear understanding of how to get started, the impact it would have, and so on. However, without good financial planning, things might not pick up the pace. While passion is the key to a successful business, it cannot lead you to success if you do not give ample thought to its money.
This includes everything from the source you get the money for your investment, your everyday operations, and how you plan to use your earnings. The different sources of financing for small businesses or startups can be divided into two different parts, i.e., equity financing and debt financing. Some common sources of financing are personal investment, business angels, government assistance, financial bootstrapping, commercial bank loans, and buyouts.
Here are some important factors that you should look into to enable a smooth transition from an idea to its implementation process. Commercial lenders will look into the four different aspects of the business before they lend you the money.
Establish A Good Professional Profile
Bankers may need to understand the project well and know that you are a good investment. You have to establish your credibility and show that you can carry out your business proposition with due diligence. You will also need to show that you have thoroughly researched your project. Commercial lenders may also look into several other aspects, such as how you came up with the idea and find all about your industry experience. Your lender may ask you several questions on the same, and based on the answers, your loan will be approved.
Your Overall Strategic Plan
Commercial lenders may first look into your business plan and see if it leads to action. How is the loan you are asking can align with your company’s overall strategic plan? Questions that you may have to answer as per your business plan, such as where you are going to find your clients or how you can choose the location, where you can find your suppliers, and so on.
Your Financial Strength
A banker will want you to give a detailed breakdown of your financial projections for the first year of your operations. Besides that, you will have to provide regular updates for the next two years. For instance, if you have around 100 clients and spend $10 each, you will have to spend about $1,000 in revenues. And how much do you earn in the first year? Your personal credit score is one of the key factors that can evaluate your start-up business. A poor credit score can make the bank turn down your loan approval. And in the case that you get a loan, the interests may skyrocket which is not an ideal way to kickstart your business. So, make sure your personal finances are in place before you approach a lender for a business loan.
Sign Up A Personal Guarantee
The bank may ask you to sign a personal guarantee for a start-up business, holding you accountable to pay off the loan. The bank will also look at how much money you will be able to invest. Most of the time, people are not successful in their enterprises because they lack their cash. So, remember to invest and build your net worth before approaching a lender. This is because the bank needs to see how much you can afford to meet your personal obligations, rent, or pay the mortgage without drawing revenues from your business.
Market Your Own Business
Marketing is extremely important, and new business owners must realize why they need to invest in marketing to improve their business. Business owners have to believe in their craft and business. Only then will their customers believe that too. People often underestimate how much they have to spend on marketing. Newbie business owners need to spend more money on marketing to let people know where they stand.
A solid preparation may help you improve your odds of securing a loan for your start-up business. Even if the answer is negative from the commercial lender, you can pick up pointers from the entire experience. That will help you improve your chances the next time you borrow money from a reliable commercial lender. Your job is to make it easier for the bank to lend you money.
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