It is true that the economic downturn has lead to a decrease in the number of small business loans accepted by banks, but it's worth remembering that in many cases the loan application failed because the future business owner failed to make a solid case for their business ideas. If a bank knows that they are going to make money from a loan, they will accept it. Getting a loan to start your own business depends on showing the bank that your venture is a low risk one and will be able to pay the loan back. The following tips will increase your chances of success:
Prepare a solid business plan
The first and most important thing to do if you aim to convince your bank to give you a loan is proving that your business has a chance of being profitable, and it's going to be able to repay that loan. The attitude of banks towards risk has become much more conservative, and they will demand a business plan before they even consider your loan application. Be prepared to document how you expect to make money, what risks could send your business into the red and how are you preparing for them. Bring in as many statistics and numbers as you can to justify your business idea and its future success. Some things that can help your case are:
Show that you know your market
Having a business plan is just the first step, you must also be able to prove that you know what you are talking about since you will be in charge of your business. You'll be expected to meet with your bank contact, and go over the business plan answering all sorts of questions and proving that you actually understand your market and your industry. For this reason, make sure you can comfortably speak about your market and target audience, justify any assumption you used on your business plan and generally look well informed about the niche your small business is targeting.
If you are planning on developing a product you should be able to justify your choice of suppliers, and what would you do in case of problems such as a supplier going out of business. In the case of services, showing that you already have potential clients lined up and how you plan on reaching more can also help your case. If you can, practice with a trusted friend or family member and ask them to ask you as many difficult questions about your potential company as they can. The key is being relaxed and showing your bank that you'll be able to make money to pay that loan because you know your business.
Be ready to negotiate
After meeting and applying for the loan you may find out that the bank is not willing to let you borrow as much money as you'd like, or the interest rate offered is disappointing. This often happens if you couldn't justify the uses for that money in a convincing enough manner, or if your business idea is seen as high risk. While this is disappointing and it may be tempting to just give up, think of this as an opportunity to create trust with your bank. Accept the smaller loan and use the money wisely, so later on you can go there again and ask for a higher loan or better terms.
Prepare a solid business plan
The first and most important thing to do if you aim to convince your bank to give you a loan is proving that your business has a chance of being profitable, and it's going to be able to repay that loan. The attitude of banks towards risk has become much more conservative, and they will demand a business plan before they even consider your loan application. Be prepared to document how you expect to make money, what risks could send your business into the red and how are you preparing for them. Bring in as many statistics and numbers as you can to justify your business idea and its future success. Some things that can help your case are:
- Proof of you having managed a previous and successful venture.
- Third party market research that shows your business idea is on demand
- A solid risk assessment and mitigation plan
- Expected sales and expenses that justify why you need that loan
Show that you know your market
Having a business plan is just the first step, you must also be able to prove that you know what you are talking about since you will be in charge of your business. You'll be expected to meet with your bank contact, and go over the business plan answering all sorts of questions and proving that you actually understand your market and your industry. For this reason, make sure you can comfortably speak about your market and target audience, justify any assumption you used on your business plan and generally look well informed about the niche your small business is targeting.
If you are planning on developing a product you should be able to justify your choice of suppliers, and what would you do in case of problems such as a supplier going out of business. In the case of services, showing that you already have potential clients lined up and how you plan on reaching more can also help your case. If you can, practice with a trusted friend or family member and ask them to ask you as many difficult questions about your potential company as they can. The key is being relaxed and showing your bank that you'll be able to make money to pay that loan because you know your business.
Be ready to negotiate
After meeting and applying for the loan you may find out that the bank is not willing to let you borrow as much money as you'd like, or the interest rate offered is disappointing. This often happens if you couldn't justify the uses for that money in a convincing enough manner, or if your business idea is seen as high risk. While this is disappointing and it may be tempting to just give up, think of this as an opportunity to create trust with your bank. Accept the smaller loan and use the money wisely, so later on you can go there again and ask for a higher loan or better terms.
If you are not convinced by the terms your bank is offering you, you can also consider other ways of getting money to start a business, and there are also many small business ideas that don't require money upfront and could help you get started as an entrepreneur.
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