How to manage your business finances
As a business owner, one of your most challenging tasks is to find enough cash funding offered at a good rate to operate and expand your primary business. Taking the right steps to secure a small business loan can decrease the difficulty. Here are the basics on what you need to know to handle your business finances.
Banks and other financial lending establishments cite potential risk factors as their major reasons for declining business loan requests. However, it’s still possible to receive a good loan for your small business by properly preparing for it first.
Where’s the Money?
Using community agencies and government grants to launch your business is the best way to start, as in many cases these offer the best terms, but in many circumstances this may not be sufficient. Perhaps you have already received funding and are now raising additional capital for stage II growth. Funding a large expansion from your own savings account, friends or family members is probably not ideal and could leave you at risk.
The requirements in receiving a business loan normally boil down to a few important criteria such as your personal credit history, education, overall experience, business plan, and the viability of the particular business you are attempting to expand or initially start. In general, having a track record showing your reliability will provide you with a loan on better terms, as you are deemed lower risk. You can read more about this in this excellent summary.
The most important task to perform when applying for a business loan is preparing an adequate wise business plan. The plan itself needs to illustrate to the potential lender that you are a low-risk candidate and can satisfy every aspect considered relevant. Use a loan repayment calculator to calculate the monthly payment you can afford. Some of these questions may include the following:
How much money do you actually need?
If you are just starting your own business, this should ideally be included when estimating the start-up capital you need. Accuracy is very important, so be sure to request enough capital in order to start off on the correct footing.
What do you intend to do with the money?
As a business owner trying to get a loan, you will need to provide, in great detail, where every pound of the borrowed money is designated to go. A business loan is typically needed for assets (property and equipment), operations (marketing, website development, and new staff) or to pay off former business debts.
When do you intend to pay off the business loan?
You’ll need to explain in explicit detail how your business loan will serve to launch your chosen business. You must successfully persuade the lender that you are capable of repaying the loan with the anticipated long-term profitability of your particular business based on your cash flow projections and financial statements. The banks, aren’t the only place to receive financing. There are alternatives and also some government based schemes.
What happens if you can’t get a business loan?
If you are not eligible for a loan, it is important to understand why. Perhaps your projections were too optimistic, or there was another issue with your application that you were not aware of. Understanding the position of the lender should help inform you as to what is required, so that you can work towards rectifying this. It might be something as simple as not being trading for 12 months, in which case you can return a few months later and reapply. Try not to let this deter you from starting or expanding your existing business.
Financial lenders lend money in order to make money on interest repayments. The higher the risk (or perceived risk), the higher the rate they require. One should avoid at all costs, payday loans and other short term financing schemes that can in many cases charge exorbitant fees. It is better to find a reliable, stable loan company who you can afford to pay even making conservative assumptions. You can calculate the amount you are capable of repaying by using a loan repayment calculator. This way, once the loan is granted, you will not have a difficult time repaying the monthly amount and your business has the opportunity to expand.