How to choose a loan for small business

Any business at different stages of development needs additional investments. Before applying for a loan from a bank, an individual entrepreneur must carefully weigh this decision and analyze his ability to repay the requested loan.

Choosing the best loan product

Banks offer entrepreneurs standard loans, commercial mortgages, credit lines, cards with a revolving credit limit, overdraft or revolving credit. Depending on the scope of activity and the purpose of lending, you can choose special business loans for enterprises in the field of trade, services, and agriculture. When choosing a loan product, you need to take into account the seasonality and characteristics of the business, as banks individually approach the formation of a repayment schedule and the provision of "credit holidays".

Choosing the optimal loan term

If the purpose of the loan is replenishment of working capital for small businesses, then the loan term does not exceed one year, or the duration of one business cycle of the company. When purchasing fixed assets: transport and equipment, the loan term cannot exceed the term of their operation and payback period - 1-5 years. If the goal is investment, the launch of a new project and the acquisition of real estate, the borrowing period is 5-7 years.

Estimation of the required loan amount

An application for a loan should be justified not just by the desire to receive borrowed funds, but by a business plan for the implementation of the project, which needs to be financed. You can issue it even on the bank's website. The entrepreneur must calculate the possible risks of further activities taking into account the requested obligations, suggest ways to minimize these risks. The business must repay the mandatory loan payments at the expense of profit, without withdrawing free money from the company's turnover.

IP loan terms

Borrower identity

When lending to individual entrepreneurs, one of the main criteria to be assessed by the lender is the personality of the borrower, since it bears responsibility for the activities of the company and management decisions made. The future prosperity of the company depends on how much he understands the specifics of his own business, and what his business acumen is.

Useful advice. Before going to the bank, you should prepare a little. The creditor bank evaluates not only the business reputation and credit history of the enterprise, but also the personal experience of borrowing an entrepreneur as an individual.

Security

The business must provide additional loan repayment guarantees. As security are:

• assets generating entrepreneurial income acquired with loan funds,
• insurance of the entrepreneur and his property,
• surety of business partners, family members, acquaintances of private and legal entities.

As additional guarantees of repayment, some banks offer borrowers to draw up an additional agreement to the bank account agreement, which receives the main financial flows from the activities of individual entrepreneurs.

According to this agreement, the bank can unilaterally, in case the client violates the terms of the contract, write off the amount of funds corresponding to the overdue debt without informing the borrower. The tax authorities enjoy this right of direct debit, writing off overdue taxes and fees from the debtor's account.

Transparency and legality of business

The cleanliness of the entrepreneur’s financial condition and competent bookkeeping increase the chances of approving a business loan application. "Gray" business schemes and tax evasion may be grounds for refusal, because they do not allow us to assess the real situation and the official income level of the company. It is not surprising, because the bank does not credit the purchase of kitchen furniture or small household appliances.

If you are ready to get a loan on the specified conditions and are suitable according to the main criteria of the bank, it is enough to contact a financial and credit institution with a full package of documents confirming the right to conduct business and fill out an application for the required amount. Then, the loan officer will personally visit the place of your business and visually assess the state of affairs in the enterprise in order to make a final decision on the application.

Watch the video: The Best Way To Finance Your Small Business Expansion. Forbes (November 2024).