Certainly new business owners find things difficult when it comes to financing because a) they have no business and therefore no assets to secure any new debt against and b) they don't want to secure any business loan against their main personal assets for example their house because of the risk it imposes.
Existing business owners may also not have many real tangible assets in their business that they can secure debt finance against and are looking for unsecured loans - those loans from banks that are not secured against assets.
So what are the alternatives to business owners looking to secure a business loan at favorable rates?
If you search on the internet you will find many unsecured business loan providers but many will want to charge you an interest rate that could be three or four times the current bank base rate which makes it prohivative to ensuring profits even exist in a business.
It's likely you'll secure finance at these high rates with relative ease as the lender mitigates their risk with the higher finance charges. But for most people this is not a route they want or need to take.
If you are tempted just to take a loan because it's available think long and hard about these high rates and start to shop around. And spend valuable time in your quest. There are many companies who want to lend you money and rates should be competitive these days because of the current credit crunch.
Mortgage rate lending is reducing so banks and other lenders are looking around at other profitable markets and unsecured loans is just one of them especially to business owners.
Start off your search with the major high street banks and look at all of the current offerings. During certain times of the year most banks and building societies actually have sales for most of their consumer lending and associated business products. So take advantage of any deals that may be available to cut the rate of interest you may be paying.
But the standard most reliable method is to talk directly with your bank about your business and take along your business plan. Lending in the standard way is still popular and probably brings about most success for budding entrepreneurs. Banks will lend to new businesses without the new business owner having to put up any collateral and there are also government based grant and lending schemes that the banks run to assist in getting new businesses started.
There are of course other methods to raise finance for a business. Debt financing covers bank unsecured loans as described above and also includes any monies you can get from friends and family or if you increased your own mortgage on your home. Equity financing is another way by selling shares in your business.
You should take advice before taking on any form of loan and this article does not form part of financial advice in any way.
Good for you! You were able to get that all important 1st loan to start your start-up business. Now you're up-and-running, business is humming, and things are looking rosier than a horticultural shop in May. Time to sit back and smell those roses? Not quite. You've gone from working 10 hours a day to 12. You need money for expansion, marketing, people. You need to go back to the bank. But since you've already been successful once, you shouldn't have any problem getting a second loan, right? Should be a snap!
Well, maybe not quite that easy. Because your loan officer is going to look at you just as hard the second time around as he/she did the first. There are no free passes when it comes to getting credit, so you better be prepared to look good.
Here's how you do it:
First and foremost, make sure your business credit is in good shape. That means that all business credit cards have been paid in a timely manner, as well as bills from suppliers, utilities and the like. To find out how you stand, check with Dun & Bradstreet. They keep tabs on virtually all small businesses, and will have a record of your payment performance. If by some chance, there's a blot on your record, find out what it is. You can be certain your loan officer will want to know what's it's all about.
It's up to you to make sure it can be explained, or better, removed before you apply for a loan. Don't have a Dun & Bradstreet credit profile? Get signed up as soon as possible. A Dun & Bradstreet credit profile is the best way to get your business credit on track and supercharge your business with vendors and lenders. This demonstrates to the banks that your business is a real business and not "in a van down by the river."
Ask for more than you actually need. It may sound scary, but remember you only use it as you need it. That's the beauty of unsecured lines of credit. Yes, bigger loans mean bigger payments, but remember you only pay on what you use. This is about getting the right amount of unsecured lines of credit so that you don't necessarily have to go back to the bank anytime soon. Applying for too small a loan can be just as dangerous as applying for too big a loan. Because then you have to keep going back. If you ask for the right amount then it will sustain your business for a little longer.
Clear up your personal credit if you have any problems. Your credit was probably pretty good when you were granted your first loan, but if for some reason it's taken a hit since then, you'd better clear it up-and fast! Even though your business may be booming, lenders know that personal credit problems could carry over to your business down the road. That means getting your report from all three of the major credit-reporting bureaus-Equifax, Experian or TransUnion. This way you'll find out exactly where you stand.
Anticipate, organize and be prepared when you make your loan application. Sounds simple enough, but have your financial consultant prepare an interim financial statement, in case the banker asks for it. However, remember that you are applying for unsecured lines of credit so you don't have to put up your business or personal assets for collateral. In short, anything that will make you look more professional and prepared in the eyes of your lending officer, but don't offer it if they don't ask for it. The fact that you've prepared this material means less work your lending officer. Nothing wrong with that scenario!
Both Peter Hale & Pat Gage are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter Hale has sinced written about articles on various topics from Business Loans, Travel and Leisure and Cooking Tips. For more information about business loans go to the section and browse the business loan providers. Peter Hale's top article generates over 18100 views. to your Favourites.
Pat Gage has sinced written about articles on various topics from Start Ups, Personal Desktop and Business Credit Cards. Pat Gage, The Opportunity Creator is not only a sought after business credit coach but also a national speaker. For more information on any topic discussed, visit Gage's site at. Pat Gage's top article generates over 8100 views. to your Favourites.