Things to Know Before You Finance Any Small Business
If you are an entrepreneur with plans to grow your business, like many other small business owners, you may have attempted your luck at getting a business loan. For many entrepreneurs, the local commercial banks and community banks within their respective towns have been the first and perhaps, only place they have attempted to get a small business loan.
Ideally, you should have your eyes set on several banks. And not just one’s within driving distance. Find out which financial institutions in your market make loans to firms like yours, then prepare yourself for the lending process by going through the list below:
- Don’t hope. Show – the bank how you will take their money and turn it into a profitable business venture. Picture the bank like any other person you would try to borrow money from…they are nervous….they need to trust you and most importantly they need to believe that you will pay them back.
- Don’t limit your sources. Banks aren’t the only options out there for a small business startup loan. Private investor groups exist, but generally speaking won’t deal with you unless you are looking for over $2 million in funding. “Hard Money Loans” exist, but you better have a quick ramp up to cover the cost of financing. 401k Rollovers are also a legitimate option for those who have funds in their “retirement” accounts.
- Develop a great business plan. One that shows the capability of the business and you. Basically, you should plan on selling yourself as much, if not more than the business you are looking to fund. What makes you special, talented, intelligent and proven that will lend credibility?
- You need to have the personal balance sheet to get a loan. Plan on needing to have a credit score of at least 680 and a net worth of 1.5 times what you are asking for in the small business loan. You should also have 30% of the loan to put up in collateral to the lender in this market.
Watch this two part series from CNBC Africa with Sisa Ntshona, Head, Small Enterprise Development at Absa and Carl van der Berg, Financial Consultant at Alexander Forbes about financing and growing a small business.