Finding the money needed to start a new business is almost always one of the most difficult obstacles new owners face. The most likely (and easiest) sources of capital are your families, friends and own savings.
However, you should not overlook institutional sources as well. Without a previous track record in business, securing a bank loan may be difficult.
Banks cite risk factors and increasing costs of servicing small accounts as the primary reasons for minimizing their exposure to small businesses. Still, it can be done.
At VSAPAC, we developed a Scorecard called FlexCheck that is able to identify the probability of your business getting a business loan by evaluating your bankability strength and identify any working capital gaps so that you can address them before meeting the bankers.
This system is built upon consultation with more than 6 local and international banks in Singapore – unlocking their best practices and risk appetite since 2009. Using the FlexCheck tool, you are able to determine areas of concerns that the banks would focus on (qualitative and quantitative), for example:
a) your average bank balances versus the existing and future loan obligations
b) patterns of repayments
c) profitability and capital adequacy
d) business model
e) and many more...
Here are some general steps that you should take to improve your chances of getting that much-needed bank loan:
1. Choose a business-friendly bank. To increase your chances of getting a loan, look for a bank that is familiar with your industry and who has done business with companies like yours. Seek out banks that are active in small business financing. Some banks lend on a conventional basis (lending money without government support), while some banks participate in government programs (in the form of government participations involving direct government funds or loan guarantees). However, be aware that banks often demand stiff collateral requirements for start-ups. Most banks do not lend to start-ups unfortunately.
2. Financial condition must be reasonably healthy – show that you can service the intended loan obligations. You need to show your bankers that a loan to you is a low-risk proposition. Have on hand a completed loan application, copies of cash flow and financial statement projections covering at least three years, and your cover letter.
3. Have a proper plan on what you intended to do with the loan. A confident and thoroughly prepared borrower is four times more likely to have his or her loan approved than a borrower who does not know the answer to some of the basic questions a banker asks. To show the extent of your preparedness, prepare a basic business plan. Your business plan should also include answers to your banker's questions. These questions normally are:
- How much money do you need? Be as exact as possible; although adding a little extra for contingencies will not hurt.
- How long do you need it for? Be prepared to go into detail about what the money will do for you and why your business is a good risk.
- What are you going to do for it? Businesses use loans for three things: to buy new assets, pay off old debts, or pay for operating expenses.
- When and how you will repay for it? Your cash flow projections should provide a repayment time frame. Convince the banker of the long-term profitability of your business and your ability to repay the loan by using your financial projections and business plan.
- What will you do if you do not get the loan?
4. Be sure all your documents are neat, legible and organized in a cohesive and attractive manner. Type all your loan documents. Handwritten documents look unprofessional. Don't forget to include a cover letter.
5. Do not push the loan officer for a decision. Doing so might result in a rejection as it appears that you are desperate more than anything else. Your banker cannot make a decision until all your documentation is complete. To ensure a speedy decision, make sure that your application is complete.
6. Be confident. An attitude of confidence enhances your chance of getting the loan. Show that you can make a success out of the money that the bank will lend to you. Visualize in your mind the positive results of your bank application.
7. Keep trying one lender after another until you get your loan. To improve your position as you change bankers and banks, the best way is to ask for a referral from a successful entrepreneur. Before you decide to approach a bank directly, find an associate, friend or acquaintance that is in good standing with the bank to give you a good referral. Bankers tend to deal more favorably those who were referred to them by their best customers.
8. Track record in borrowing. Bankers prefer to lend money to borrowers who have borrowed at least once and have paid back at least one loan on time. They are not venture capitalists that make high-risk loans regardless of the profit prospects of your business. Bankers prefer to lend to low-risk, low profit ventures than to high risk businesses or those with no record of accomplishment.
For more details about FlexCheck, please contact advisory@vsapac.com
No comments:
Post a Comment