Wednesday, August 19, 2015

How to get a bank loan for your start up

If you have answered the previous questions in a way that supports your ambition to open a small business, the next thing you need to think about is how you will finance the start up.  A bank loan is the traditional source of funding so let's talk about what you will need to do to get the loan.
First you will need to create a business plan.  Banks will always require a full business plan for a start up and creating one takes a good chunk of time, even for professionals.  We generally expect a plan to take 40-60 hours to complete and a novice can expect it to take much longer.
Next you will need to supply the bank with information about your personal finances.  For most small business start ups, the owner is as important as the business plan so if you have a poor credit history/rating and little personal equity or cash, then a bank loan is not the way to go.  The bank will ask you to complete a personal financial statement which will detail all your assets and debts and sources of income.  They may ask for documents, like bank statements. to verify this information.  They will also ask for three years of personal tax returns to verify your income and they may ask for a current pay stub.  
Pull together the resumes of all pertinent owners and employees. The bank will want to see that you have amassed the proper skills to run the business successfully.
Have a folder with all your legal documents: articles of incorporation, business licenses and registrations you may need, operating agreements, franchise agreements, commercial leases and any other relevant contracts.
You will need to be able to explain to the lender what you will be using the loan proceeds for and how the business will repay the loan.  Have a detailed list of  any assets you expect to purchase including price and anticipated supplier.  
Be prepared to explain who will be handling all the important tasks in the business. 
It can be very helpful to hire an expert to put together the business plan, but the owner(s) need to comfortable with the details and assumptions in the plan so they can answer the questions put forth by the lenders. 

Getting a bank loan is one of the most stressful parts of starting a business, but if you pull together all the expected information and prepare for the meeting with the lenders, you can succeed.


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