How to Finance Your Business

The single biggest obstacle in setting up your business, will be convincing your bank to give you a loan. Here are five important strategies that could help you:

1. Buying The Business: If you are buying an existing business, with a history of revenue, it is a much easier proposition for a bank to lend you the money. Buying an existing business may be more expensive than starting one, but your chances of success will be greater. Banks know and like this. If you are also buying a property-based business, such as a hotel, then the loan can be leveraged against the value of the property. This means that even if your business fails, a bank can get its money back from the property. Again, banks like this.

2. Consider buying a franchise. Very similar to buying a business. You are essentially buying into a concept that has already been proven whether it is a Ben & Jerry’s Ice Cream Shop or a Little Gym. Some banks will lend you up to 60% to acquire your franchise. However, the franchise company itself will often be prepared to lend you the money to buy into their concept. It is a well known fact that 90% of franchise concepts that have been established for more than two years are unlikely to fail. Therefore, you are also unlikely to fail, which makes lending you the money more attractive.

3. Understand the numbers. When asking for money – and it doesn’t matter who you ask it from – the lender or the investor will want to make sure you know your numbers inside-out. You must have this information at your fingertips. You need to know exactly how much you want and what it is for – down to the last cent or penny. You need to demonstrate when you will be profitable and how you will become profitable based on a credible forecast of your future costs and sales. This is something that will be backed up by your business plan – which is something you should be able to refer to without actually looking at it.

4. Get your deposit together. If you can put together 30% or 40% of the money you need to start a business or buy a business then a bank is more likely to approve your loan for the rest. This large amount of money shows commitment. It is highly unlikely you will be able to raise 100% of the money from a loan. This means that you will need to start saving for at least 10% – the very minimum. Why not set a more aggressive target? What amount can you start saving each month? Open the account today! Start saving! Could this be a five-year project? Are you willing to save over the next five years? This is a life changing event – why not? If you are prepared to do this, then you will have the commitment to be a success.

5. Get the business plan right. Banks or investors will study your business plan in detail. This means you need to find out all there is to know about the market you are entering or the product or service you are going to provide. Know who your competitors are. Know your competitors’ turnover, profit, strengths, weaknesses and history. If you know this and it is represented in your plan then your chances of raising the money become better. If you do not have this knowledge at your fingertips, then why should anyone lend you a penny or cent?

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This entry was posted on Tuesday, August 9th, 2011 at 8:27 pm and is filed under Banking/Finance. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.