Startup capital is one of the most important components of a new business. The key
to being able to obtain startup capital
not only depends on a valid business idea but also on a well-devised business plan.
Such an effective plan is a prerequisite of most lenders and must be presented to
potential investors or creditors
for consideration. Many potential business owners do not take efficient time in
preparing their business plan and, as a result, are at a loss when they are asked
when and how the borrowed money will be paid back.
It is important, when looking for startup
capital for a new business, that the entrepreneur fully explores the various
options available. Every potential new business has a variety of things that will
tailor what type of startup capital the entrepreneur is trying to receive.
Your local bank
Many people trying to start a new business will simply visit their local bank to
see if there is the possibility of borrowing startup capital there. While a commercial
bank loan is not always guaranteed, a local bank can serve as a valuable resource
in understanding the startup loan process. In addition to the business plan, things
such as the credit history of the borrower, financial projections of the new company,
collateral, and other documentation are needed for loan consideration. Banks are
also known for judging applicants according to their character since it is a professional
transaction. By meeting directly with the potential borrower, the financial lender
can make a subjective assessment on the companyâs founder(s) and/or prospective
business proposition.
The goal of meeting with loan officers is to obtain startup capital; therefore,
first impressions are crucial. When a prospective borrower meets with local bankers,
it is important that s/he be prepared to present his/her detailed business plan.
The borrower should also be ready to answer all questions that the lenders may pose
when trying to learn more about the new business. The
entrepreneur will need to
sell their business proposal to these people and convince them that it will be a
financially successful venture. If this information is not properly conveyed, then
the prospective business owner may encounter a high chance of rejection and will
not receive the money they need. It is also important to note that even though an
entrepreneur may have a solid relationship with a certain bank for several years,
they can still explore securing their startup capital at other banks in the area.
Bank loan approval
Approval of a bank loan may come in the form of a telephone call or a letter through
direct mail. Each loan document should be thoroughly reviewed and understood before
proceeding to agree with loan terms and signing any forms. It is always a
good idea
to consult with professionals when accepting an approved loan. In addition, copies
of all paperwork should also be made and kept in a safe place for future access.
Entrepreneur borrowers are also encouraged to keep periodic contact with their loan
officers. By keeping the communication levels open, the entrepreneur will be able
to discuss any business-related problems and may easily find solutions to those
problems. The
entrepreneur should also be prepared to make monthly payments with
interest and other additional fees that may apply.
Bank loan rejection
If a prospective
entrepreneur gets rejected for a small business loan at the local
bank, s/he should not be discouraged. Often times, business owners will get rejected
multiple times before a bank will approve them. The most important thing that the
entrepreneur can do, when faced with rejection, is to be persistent. They should
inquire about why they were rejected, work diligently to make those changes, and
then reapply at another bank. While the rejection process may seem rather perpetual
and redundant, others will simply obtain
funding elsewhere, including from the collaborative efforts of friends and
family as well as angel investors.
Conclusion
Raising startup capital at a local bank can be an easy process if the entrepreneur
is qualified. Certain requirements may apply, including credit and cash flow history,
financial forecasts, and a business plan. While there is always the possibility
of rejection, the entrepreneur should not be discouraged. They should repair any
discrepancies that exist and then reapply for loans at other banks. If approved,
it is important that the prospective
entrepreneur understands the payment terms
and schedule, as well as be prepared to pay for accumulated interest rates and other
fees.