Finance How to convince a bank to fund your business

Augusta

VIP Contributor
A lot of times there might be no other way to fund a business than to borrow especially for a startup. The truth is that banks most times hesitate to fund businesses especially for beginners when they know the rate of failing is usually high. But you can still convince them against all odds to get their approval. So you would need to do the following to stand a better chance of getting the loan

  • Start by having a good credit rating, you know that you should have a clean credit score. This will help you to have a better standing when you apply
  • Then write a good business plan, you can’t talk about a loan for a business without a business plan. The bank will want to convince self that your business plan will be a success.
  • Avoid a business domain that have high level of failure, it doesn’t go well for bank loan requests. You don’t need to go for bank loans to start a gambling or porn business.
  • You need to at least show a good level of investment, this simply means you should be able to pay at least 10 -20 % of your loan money. It shows the bank your level of commitment
  • Show your repayment source or sources. The bank will be sure you have avenues you would use to pay back your loan
  • Demonstrate the possibility that you would be able to run the business well. Let the idea you have be a salable one
  • Let them know you would like to complete your repayment before you start taking out your salary. All of this is to convince the bank that you would be selfless with running your business
What’s your thought?
 

Immilash

Active member
That's true. Most at times especially new start ups find it very difficult to have enough funds to start up their business. Many people decide to take loans from banks to fund their business but for me I don't do such a thing because I don't like to take loans especially from a bank I rather take loans from family members or friends the one's that won't put much pressure on me.
 

Augusta

VIP Contributor
You are right getting a loan facility as a startup isn't easy infact most banks don't even agree with it because they believe that the business is yet to have a footing but you can still convince them, let them know you are serious by doing the above details. it is always good to try out
 

sincerem

VIP Contributor
All you mentioned is feasible enough for an individual hoping to get a loan for his business to get one from the bank and start up a business of his or her own. When the information is well tabled, and the options simply meets bank requirements for a possible loan, they wouldn't hesitate to offer the loan since the loan seeker have what it takes to be a success for the business and other avenues too to repay the loan taken for the business start up. Than having nothing tangible to present, in order to get a loan, because the bank won't offer such person a loan.
 

Augusta

VIP Contributor
That's the truth even banks that don't want to give if the person bring so much to the table they are likely to look at your proposal or business plan. A business owner that doesn't have any other source of capital so still present a front to the bank to get a loan.
 

Good-Guy

VIP Contributor
I think each and every kind of bank has its own policies. It is harder to get a loan from the bank or any other kind of financial organizations because your business model might not be compatible with the banking policies or the policies of the institutions that offer loans to the general public. So, I do not think that mortgaging is the only issue many businesses face when it comes to applying for a loan, as there are various kinds of other difficulties when it comes to getting your loan approved.
 

Augusta

VIP Contributor
But the most is convincing them to agree with your business plan you need to start with this, because even if your business is in line with their policies but your business plan shows you are novice then they might not want to gamble with their money so it will be a lot better to try out with the above listed details
 
T

temidayo2313

Guest
Write a good business plan first, clean up your credit rating before you apply.pick a business domain that is squeaky clean and show a significant personal.
 

Mika

VIP Contributor
There are certain things to be taken care of if you want to get a bank loan. First of all, you business needs to be a registered business, your business needs to be registered with local authorities. Secondly, your business need to have a location, you cannot just get a loan for a business that you are operating from your bed room. Your business also need to be functional and have something to give as a coleretal.
 

Mellorando

Banned
Asking a bank for a loan to fund your business sometimes could be hard that is why you should allowed the Bank to evaluate your company's debt repayment history, your business references, the quality of your product or service, and whether you have a good reputation. As a business owner, your personal handling of credit is also an excellent gauge of your likeliness to repay a business loan.
But for a startup A common question people ask is “How do I get a bank loan to fund my startup?” The default answer is that it probably won’t happen, because most banks just don’t make bank loans to startups. The failure rate is just too high, and startups typically don’t have the assets or revenue stream to back up the loan. That’s why angel and equity investors are so sought after by entrepreneurs. In my experience, some startup founders do overcome these odds, but you need to be realistic and do your homework. Here are some tips and rules of thumb to improve your odds and help you understand when a bank loan or line of credit is possible, and how to get it:

1 Write a good business plan first. Approaching a banker without a business plan, and asking for money, is a sure way to be rejected and leave a bad first impression. Pay particular attention to the financials, and have a CPA friend review for reasonableness before presenting.
Clean up your credit rating before you apply. Good credit ratings, both personal and business, are essential to getting a loan or line of credit. This is just common sense, since every loan has a repayment schedule, and your credit score reflects your track record of paying bills on time.
Pick a business domain that is squeaky clean. Certain business sectors have historical high failure rates and are routinely avoided by banks and investors. These include food service, retail, consulting, work at home, and telemarketing. Also, don’t expect enthusiasm for your gambling site, porn site, gaming, or debt collection business.
Show a significant personal investment. Most loan programs, and most investors, want to see that you have “skin in the game’ before helping you. If you have nothing at risk, your own level of commitment is suspect. As a general rule, your investment should be at least 20 percent of the total projected loan requirement.

2 Demonstrate an ability to repay from revenues, not collateral. Bankers will insist that you have collateral to back the loan, like equipment, or even your home. They actually prefer to see that you have a revenue stream to repay the loan, since they don’t want to own another home. The more conservative ask for two years of positive cash flow.

3 Demonstrate experience in starting a business, ideally in this domain. Bankers, like investors, fund people rather than ideas. Your idea alone will not get you a loan, but your experience running businesses may get you a loan, even if not intimately related to the current proposal.

4 Conduct meetings at your site, not at the bank. You have an advantage if you can get them on your turf, and even get several key employees to tag-team the presentation. If you are a startup operating out of your garage or basement, you are likely too early in the cycle to get banks interested.

5 Eliminate your salary from the use of funds. Most startup founders don’t take a salary for the first year or two, since most investors as well as bankers won’t give you money so that you can pay yourself. The most positive use of funds is to buy raw materials to build product for existing customer orders. In fact, customer orders are great collateral.
 

Yusra3

VIP Contributor
Convincing a bank that your business is credit worthy means having a well-formulated business plan which must show evidence of the venture’s profitability and growth potency. Raise your profile in the market as an expert in the field, and a similar place where your uniqueness and risk mitigation solutions play. Collateralize, do proper research on the lending institution, and have enough of your money to start off the business with. Provide budgets that are accurate and realistic, execute market analysis, as well as prepare a loan repayment strategy. Transparency is key, therefore present the investors with any prospective subject of concern and let them witness your enthusiasm for the business.
 
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