Introduction to Business 1301
14 April 2013
Business Financing for the Small Business: Go Fund Yourself
Business financing takes on many forms, from the traditional to the contemporary. This paper explores the various ways a small business entrepreneur might consider financing his or her enterprise. The type of financing pursued by any entrepreneur will largely depend on the type of business being financed, the amount of financing needed, and the type of relationship one wants with the financier. There are four major types of business financing: the bank loan; personal financing; venture capital; and crowdfunding. The report will explain how each type of financing can be obtained and will match that financing to the best type of business suited to obtain it. Bank Loans
There are many reasons small businesses apply for loans. One of the more popular ways to apply is through a bank. Bank loans can be very time consuming for the business owners and do require a great deal of paperwork. When a small business owner decides to apply for a loan there are a few steps they should take before making an appointment with a loan officer.
The first step a small business owner should take when applying for a bank loan is to pull their personal and business credit reports. They should also perform background checks on all of the company’s owners. Some banks may also require resumes on all of the owners. There are three bureaus that report personal credit history and ratings: TransUnion, Experian, and Equifax; Dun and Bradstreet (or D&B) reports business credit history and ratings. The information in all of the reports should be verified and checked for accuracy. Any inaccuracies should be removed prior to submitting the application. This includes anything negative and anything that can be corrected beforehand.
The next step the business owner should take is to prepare a business plan. A well-organized business plan is very important in showing the loan officer that the business can turn a profit and that it deserves a loan. The business plan should include the projected financial statements, estimated or past profit and loss, and a balance sheet. A proper business plan can be very difficult to complete; therefore hiring an accountant or financial planner might be beneficial. The business plan serves to show the loan officer how and why the business will be (or will continue to be) profitable so the loan can be repaid. The loan officer does not want to approve a loan (whether big or small) that they believe will not be repaid.
The third and final step that should be taken before applying for a business loan is to make sure that all of the documents that might possibly be required for the loan are available and ready for use. Some of those documents may be: ·
Past bank statements;
A collateral document (an appraisal of the property to be used as collateral) ·
Business licenses or registrations;
Copies of contracts;
The above items should be put together into a demonstration for the loan officer. As the owner of a small business you want the loan officer to give your application a second look. Make your case undeniable! Include charts, graphs, and an executive summary. The best sales person for your company is you! You are now ready to make your appointment!
The top four mistakes made by small business owners when they apply for a bank loan are: ·
Underestimating the value of personal credit. The odds are if the owner has not been taking care of their personal bills the same will happen with the business in the future; ·
Applying for the wrong type of loan such as a short term loan for a long term project; and ·
Expecting a loan to be approved without proof of collateral. They need something that will be tangible in case the business fails; and finally, ·
Not making yourself known to the loan officer or the bank. The best way to do this is to try applying for a loan at the...
Cited: Web 14 April. 2013
Ganis, Stephen L
Web 14 April. 2013
“Learn How to Raise Money for a Simple Idea.” Indiegogo
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