There is a lot to considering when thinking about setting up your new business venture and raising finance, especially in the current uncertainty of today’s market. The approval process will be very stringent and there will be many detailed requirements expected of you in order to prove that you have a successful business model, for this reason a clear and concise thoroughly detailed business plan is going to be key as to whether or not you are able to secure a loan.
The following information looks at what will be required of you before a lender or governing body will consider your application for grants and loans for small businesses:
Your level of equity: They will need to see proof of your total current investment towards your business in order to ascertain whether or not it is going to be stable enough to support your business operation. From this information they will be able to assess the true value of your business, for instance the weaker your investment portfolio the lower the amount loaned to you will be.
The true cost of borrowings: Your chosen lender or granting body will want to see a detailed financial plan that clearly outlines interest rates and fees as well as hidden costs. Ultimately they want to have confidence that your profitable business ideas are realistic and that you have a thorough understanding of what is involved when it comes to any capital you require to get the business of the ground, as the amount you pay back will be higher than the cost of borrowings. Shop around and get a good indication of the loans and their annual percentage rate (APR), this will give you the true cost of the loan you are borrowing and will take into account the fees and the interest rate of the loan and subsequent charges involved.
Analyze your business: Before you consider taking out a loan it is important that you look at your monthly figures and what re-payment you can afford, as your monthly payment will depend on how much you borrow, the interest rates and the length of term you have taken out the loan for. Do your research well as some loans have different formulas and hidden costs.
When starting your own business venture its easy to get caught up in getting your proposed business idea of the ground with out having to consider the risk and the ‘true’ cost of a start up business venture. Its important to remain realistic about what your business can achieve, think carefully about where you plan to spend your money and consider all the options before taking out a loan. Grants are a great option although not readily available, even if you think your business may qualify for a grant you will still need to convince the awarding body as to why your business should be put forward for a grant, so a lot of research will be required if your business is going to be successful.
The most important thing is not to lose sight of the risks involved, because if your business doesn’t perform as well as expected then ultimately you will be paying for it.