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Whether you have an existing business or have just started your first enterprise, you may find yourself in the position of needing to borrow funds to develop your business. But getting a business loan is a process that requires careful consideration.
Just the thought of taking out a loan or loan can scare someone very much. But on the other hand, the very fact that you are in private business is a pretty big step that not everyone can take.
Sometimes your business needs an extra hand to be able to grow and succeed, otherwise you can miss the moment and all you'll be left to regret is why you didn't try the development opportunity.
Choosing to get a business loan or loan is not always an easy decision, especially if you have other obligations to worry about. Before you take the plunge and apply, ask yourself these business loan questions, and before you make any moves, consult your accountant, financial records, and cash flow plan.
1. Do I really need a business loan?
First you need to ask yourself perhaps the most important question - Do I really need a business loan? The last thing you want to do is take out a loan when you don't need it, or take out a business loan and go on vacation?!?! You should never take on additional debt just to say you're trending with business loans.
Analyze development opportunities and determine if you really need a business loan before making any moves. You can also explore other avenues before going the credit route. For example, you can ask for help from "angel investors", friends or family, but not from informal lenders
2. For what and how many tools do I need?
If you determine that it is time for you to get a loan, the next question you should ask yourself is what you need the funds for. For example you may need a loan to:
· Purchase new equipment/machinery
· Invest in stocks (you can secure a good price especially now that with the period of COVID, there is difficulty in supply and transportation costs are multiple)
· Invest in marketing
· Improve cash flow
· Expand your business
· Renovate the work environment
· Want to maintain continuity of team payroll
And how many tools I need depends on several factors, such as:
· What you plan to use the funds for
· Your annual gross sales (gross profit)
· Existing debt, accounts payable, etc.
Do I need a business plan?
Preparing a business plan should be a good starting point to determine how much you should borrow. Ideally, a business plan should describe why you need the loan and how you plan to pay it back.
Communication of financial information is very important when negotiating with external parties. That is, education in financial aspects and terminology increases your confidence in front of other parties. Clear accounting and financial management is very useful when applying for a loan at a bank or when attracting potential investors.
When a bank analyzes a loan application, it asks the business for financial statements with the sole purpose of understanding whether the company is able to repay the loan. But the main thing why you need the financial statements and the cash flow plan is for you as a business to convince yourself that you can pay back the loan and not just the bank and operate with different cash flow scenarios.
Banks make sure that the company has paid off previous loans on time, the ratio of assets and liabilities where other important elements are taken into account before approving the loan.
On the other hand, potential investors look for what segment the company operates in, the company's profitability, the competition, the company's past earnings,
When do you need tools?
Never leave applying for a loan at the last moment when you need the funds. Applying at the last minute provides you with high-cost funds with high interest and other obligations.
Applying for a business loan is an administrative process and not a lot of fun. Owners of startup and growing businesses have challenges in obtaining credit due to the lack of credit history and therefore find it difficult to convince institutions that their development idea enables timely repayment of the loan. One thing that helps a lot in this process is the formalization of the business. It's too bad that the business has the papers and things don't match, the more difficult and expensive the loan will be. Banks apply preferential conditions to those businesses that are well formalized in terms of collateral and mortgage, and the criteria for credit coverage are very small for businesses that are formalized.
One thing is certain, your business cannot develop or grow if you do not have a loan channel or a loan, so to secure a favorable loan, it is very important that the letters are correct.
And for me, the letters are coming, we have available new technologies that enable you to have access to your data, financial and managerial reports at any time. If you continue to operate only with an external accountant with whom you exchange documents once a month, then you as a business will lose the decision-making moment and spend much more time collecting and consolidating data from Excel, letters from the accountant, your notebook and thus increase the chances that you will not be convincing in front of the party that will approve your credit/loan and make it difficult to implement your idea.
