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How to get a business loan

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Take a very close look at the amount of money you think you will need. Know exactly how much money you need to raise, as you have to be able to justify every penny to a lender. Approaching a bank with the attitude of how much can you give me? will not inspire confidence.

Take a very close look at the amount of money you think you will need. Know exactly how much money you need to raise, as you have to be able to justify every penny to a lender. Approaching a bank with the attitude of how much can you give me? will not inspire confidence.

Define your income streams

According to Nigel Lander, a specialist finance adviser for Business Link, raising finance for start-ups or early-stage businesses is very difficult. One way that will increase your chances is to prove that your business has clearly-defined income streams. If you show that your business will have money coming in, it will be easier to persuade the banks to provide finance.

Bank finance is essentially for lending against anticipated income streams. For a very early-stage business, banks might come up with a small amount of money to match what the owner is putting in, on a pound for pound basis. Make it work at a modest level, advises Lander.

If you have very little or nothing to put into the business, it will be extremely difficult to convince the bank to part with money. To heighten your chances, try and raise money from as many other resources as possible, such as your friends and family, any retained profits you may have, or a third party investor. Banks want to see commitment from the business owneR s end, so you will probably have to come up with some kind of security as a form of guarantee, such as your house.

A watertight business plan

When approaching a bank, your business plan and how you deliver it should be the best it can possibly be. If your bank manager is your best possibility and you have not practised your presentation, you might blow your chance of accessing finance. You could try approaching a different bank to do a test run .

Many applications for finance get turned down because they are badly written or presented, and many get turned down because they are presented to the wrong people, says Lander.

According to Guy Herrington, marketing director for business banking at Lloyds TSB, a well-prepared business plan is essential when approaching a bank, and many banks have packages to help you write and prepare your business plan.

Banks decide to finance businesses on a case by case basis really. Less than 40% of customers actually borrow money when they are in the early stages of their business. Most will use funds from trade creditors or their family, says Herrington.

Prove your management ability

Another factor affecting whether a bank will agree to finance your business is your track record and management ability. Can you make the business work, and do you have a background in the sector are questions you should ask yourself.

The quality of the management team is always a major consideration. To help you, make sure you have support from a third party who has experience in areas where yours may be lacking, suggests Lander.

Lloyds TSB s Herrington says that it can be useful if you have a track record, but it is also worth highlighting any other relevant skills that you can bring to the business.

The bank s view

At the end of the day, banks never finance anything on a 100% basis, otherwise they may as well be running the business themselves. They will always be looking to finance businesses on a partnership basis, and will always want a contribution in, for example, monetary terms from people running the business.

Remember also that each branch manager has a different discretionary lending limit; above the limit your application may need to be processed elsewhere, which means you could lose part of the personal touch. The moral is to shop around, and certainly do not be put off by being turned down.

See also: New loan scheme to fund your business


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