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Setting Up A New Business - What You Need To Know
When it comes to raising business finance the first stop off point for most people is there bank. Banks are the primary place for business loans. As you already have an established relationship with your bank they can provide convenience. However most large banks are not small business friendly even though it has been said that they are making more of an effort with smaller businesses. This is true but refers to smaller businesses who have significant collateral.
A bank loan is appealing as it can provide a long term solution without inferring with how you run your business.
However as well as paying back the bank loan you will also have to pay back interest. They may also expect you to generate a share of the capital yourself.
No matter what bank you go to in hope to find business finance; all of them will want to see what you have when it comes to what is now known as the six C's:
â€¢ Capacity - what is your businesses ability to repay the loan? This is the most important factor lenders will look at and is why creating a cash-flow statement in your business plan is important. As it will show your intended lender how your business will be able to repay the loan
â€¢ Credit - lenders will look at your personal credit as well as needed the business owner to co-sign or guarantee a loan. Lenders are willing to take a risk lending money to you but are not willing to let you walk away without assuming some of that risk yourself. The higher your personal credit score, the more likely you are to obtain a business loan with good terms.
â€¢ Capital - how much money are you asking to borrow and is that amount reasonable given your businesses financial situation? The more money you ask for, the more scrutiny your loan application will receive. It is a good idea to talk with your lender before submitting your application to find out the loan limits your business will qualify for.
â€¢ Collateral - meaning assets you have that can act as security for your loan. The more collateral you can provide, the better your chances are of getting your loan approved.
â€¢ Character - are you a trustworthy person? This is a major aspect that smaller banks will look at and is not as big a factor for larger banks. However, all banks will look at both your business background and the amount of experience you have working in your industry.
â€¢ Conditions - what is the purpose of your loan? Lenders will want to make sure that you are using the loan for a business purpose and that the terms of the loan make sense to them.
However if your business venture is a start up business then a bank loan may not be the best source of business finance for you. Many businesses that are just starting out find it difficult to pay back a loan, especially with the interest that will be added onto it. There are alternative ways of gaining start up capital for your business such as equity funding in the form of business angels or venture capitalists.
It might be in your interest to research into these forms of start up capital before making any decisions on how you intend to fund your business.
Helen Cox is the web master of Angel Start-Ups, home of all your business finance needs.
Please feel free to republish this article providing this resource box remains intact with a working hyperlink to our site.
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