6 Ways to Prepare Your Organization for a Business Loan

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Six Ways to Prepare Your Organization for Business Loan
Six Ways to Prepare Your Organization for Business Loan

You have a great new business plan. You are either on the verge of starting a new company or your idea is a good one for expanding one that is already running. However, this business plan needs financing, and not just a small amount of financing, but a large one. A loan from a bank or a non-banking financial institution is necessary.

Getting approval for a loan is not easy. Financial institutions have many requirements that need to be met, and unless they are completely satisfied with your proposal, the loan will be rejected. Here are 6 ways in which you and your organization can prepare yourself to meet the requirements for a loan.

How to Prepare Your Organization for Business Loan

  1. Detailed, Comprehensive and Well Thought-Out Business Plan:

    When the bank manager is looking through your application, he will want to know everything about your company, the staff strength that it has, the products that it plans to sell and who you plan to sell it to. The plan should preferably also contain details about the acquisition of raw materials and details about the running of day-to-day operations. The more comprehensive the plan, the easier it is to convince the bank manager. He should look at the plan and have faith that the business will succeed.

  2. Create Accurate Financial Statements:

    For an existing business, it is important to generate accurate financial statements and reports, and for a new start-up, having financial projections is imperative. This will enable you explain what part of the business you need the loan for, how it is going to be spent, and how you will generate revenue to pay back the loan. If the bank managers find a flaw or a drawback in any part of the financial statements, then you should be empowered with the knowledge to explain it to them. Not every business owner has knowledge of the intricacies of accounting statements, and having good accountants for support will be critical.

  3. Other Means of Financing:

    The bank manager will want to know what other means of financing your company has at its disposal. Are you going to acquire all the funds solely from this bank? Have you approached other banks or private money lenders for a loan? How many shareholders or investors are going to be sitting on the board? The bank manager will ask how much of your own capital you are investing in the business. This question might seem funny for some business owners since they would not be approaching the bank if they had their own capital. But bank managers would not want to be the sole financier of any business. If you or someone else is investing their money, it means that the risk is being shared, and that you have faith in the success of the venture.

  4. Sign Over Collateral:

    You should also be prepared to draw up collateral. Banks and financial institutions are always worried about defaults in loan repayment, and mostly seek some kind of insurance. You will, thus, have to be prepared to sign over buildings or machines or other assets in the bank’s name. If you do not make the payments on time, the bank can sell these assets and reclaim their money.

  5. Timing of the Loan Request:

    Requesting a loan during an economic boom is always easier than during times of recession. Smart financial lenders always look at the bigger picture. If you plan to sell garments, they will assess the garment industry and analyze what the demand and supply picture looks like, and not just now, but maybe three or four years from now. If you plan to sell gold, they will look at how many people buy gold, what the trading price of gold is, how much is imported and exported, and whether the demand for the yellow metal is seasonal or not. They will always look at the overall scenario, the local economy, the national economy, and all matters related to the industry, so that they understand what your chances of success and failure are.

  6. Track Record of Stakeholders:

    Sole owners, members of a partnership firm, and directors of a company should also be prepared to have their personal affairs looked into. What is their track record of running successful companies and businesses? What are their educational qualifications? The managers will look at credit scores and ask for references. The better the calibre of people asking for a loan, the higher are their chances of getting it.

So next time you walk into a bank asking for a loan, make sure you have all your business and personal documents and financial reports and projections in order. Prepare strong answers to the tough questions they will ask. Do not think merely about the state of your business; think about the overall status of your industry. Make a strong presentation, one that will ensure that the manager will have no option, but to say yes to.

Also Read Related Articles:

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1 Importance of Financial Planning for Organizations
2 Tips for Budget Forecasting for Businesses
3 Important Financial Ratios for a Business

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