admin

JNA Dealer Program

How to Get a Loan to Start a Business

How to Get a Loan to Start a Business

It is not easy to secure a startup loan, but it is possible. Below, we will cover and provide examples of what you need to do to plan for the loan application process, what to do if you are denied, and what options are available for alternative financing.

How to prepare for a Loan Application

if you are starting a company planning is a crucial part of a successful loan application. We outline some of the steps you’ll need to take:

  • Detail what the loan will be used for.
  • Register to get the appropriate license for your business.
  • Select a bank with which you have a partnership.
  • Prepare a comprehensive business strategy.
  • Show your related expertise in the business and management.
  • Get in order with your personal finances and credit.
  • Be able to provide collateral, a personal guarantee or a cash down payment.

Prepare a detailed business plan or strategy

Your business strategy will make or break your application for loans. The following elements would be part of every successful business plan:

  • Analysis of markets and competitors
  • The strategy of marketing and sales
  • Management team summary
  • In-depth Financial predictions/forecast
  • An executive summary
  • An overview of a business
  • Overview of services and products

A successful business plan should make it simple for your lender to accept and send you funds for your proposal. It is always recommended that new entrepreneurs contact local chapters of business organizations, such as SCORE or SBA regional offices, to get help with writing and improving their strategy to get the business plan up to speed. Business owners are also encouraged to consult a CPA for assistance in planning or updating financial forecasts.

Be able to offer collateral, personal guarantee or down payment

You should be prepared, or both or any combination of the three, to put up collateral, make a personal guaratee or have a cash down payment. You may be required to use personal properties, such as your house, cars or savings, since you may not have business assets to pledge as collateral, and/or offer a personal promise that you can repay the loan in the event that the company can not. Moreover, with a 10 percent or more cash down payment on the loan, these pledges can be combined. Startups are risky, so banks like to see that founders, so to speak, have some skin in the game to minimize the likelihood that if the company fails, their money will be lost. So if you’re asking for $200,000, a borrower might expect you to pay $20,000 of your own loan money.

Detail of what the loan will pay for

The mistake of not correctly calculating how much money they need is made by most new entrepreneurs. Create a comprehensive list of what you plan to use the loan to pay for and how much each item on the line costs to combat this. You need to be as accurate as possible. For example, if you intend to buy inventory, explain the exact type of inventory and how many units of each type you will need. In your calculations, you can also provide the price per unit. As it will help your application get accepted, be sure to share this list with your lender.

What to Know About Startup Loans and How to Get a Loan to Start a Business

Register you business

Prior to applying for a loan, get your company registration, licenses, and permits in order. You will need to file these licenses, permits, and registration with your state government and pay for them. Normally, online, you will fill out these applications.

Choose a Bank You Have a Relationship With

When you apply for a loan, never underestimate the strength of an established partnership. A banker who knows that you will be all the more likely to work hard to get your application accepted, or press for exceptions from their committees. It is more ideal if you start with the bank or lender they are already using. If that’s not an option, see if via a mutual connection you can get referred to another lender

Show your related experience in the industry

In your business plan, you would want to provide a thorough overview of the related industry and management experience of your business partner and yourself. To your lender, you need to make the case that you and your partners are willing to start and expand this new company. To support this for all principals of the new company, you should prepare resumes. Get referrals, if possible, from former colleagues or other members of the group who can talk about your specific experience.

Personal Finances and Credit in Order

Your bank or lender will want to take a look at your personal credit report because you don’t have a company (yet). Self-check your credit report and take care of any issues first. Not only do banks like to see borrowers with strong credit ratings, but also borrowers with a combination of credit and loan accounts like credit cards, loans, mortgages, etc, and a credit history of several years. In deciding whether you can even apply for financing, your credit report would be a major factor.

What to Do If a Startup Loan is Rejected

Ask your banker or lender why if you are rejected. Most banks are more than willing to share the reasons why the application for your business loan was denied. The reasons for your denial are in certain ways fixable, anything like a bad business plan or a lack of collateral can be remedied.

In other situations, consider asking your lender whether you are eligible for other forms of funding, such as contract financing, equipment financing, or accounts receivable, when the solution is not so easy. Perhaps, if you get a contract from a customer or once you commit to buying some equipment or vehicles, your bank can loan you money. Finally, think about finding a new lender or bank. Just because your loan application doesn’t fit into the lending portfolio of a bank doesn’t mean your application will not be accepted by another bank. It’s often a matter of finding a bank that would like to partner with borrowers like you.

Need A Financial Loan for your Business?

button_apply-for-a-loan

 

 

What Are The Pros and Cons of Equipment Loans?

You probably use at least one form of equipment as a business owner, regardless of the industry of your company. This equipment is likely to be integral to how your organization operates, or makes it easier to do so.

Unfortunately, most machinery is costly, and it may be too expensive for you to buy with the multitude of other business expenses you have to afford. Fortunately, this is why business owners resort to loans for equipment for their funding needs!

Deciding whether a loan for equipment is right for your company would depend on many factors. However, equipment financing may be a good choice if you rely on expensive equipment to run your company.

We’ve compiled a list of the advantages and disadvantages of equipment loans to help you decide whether an equipment loan is right for your business.

Equipment Loan Disadvantages

Usage is limited to Equipment

Equipment loans may, as the name suggests, only be used for equipment. That means that the proceeds from an equipment loan would not be able to be used to fund payroll costs, rent, or anything else. For instance, in this case, if your business needs funding for construction equipment but also wants to use the funds for payroll, this is not the best form of loan for you.

Other forms of extra working capital allow you the ability to use the funding as you see fit, such as a merchant cash advance, lines of credit, or a credit card. This is not a very significant downside, of course, if the only thing you need the cash for is to buy equipment.

Higher rates than regular loans

Equipment loans usually offer attractive interest rates, as low as five percent. However by taking out a standard loan, if you have an excellent business credit history, you’ll usually be able to find a lower interest rate. Review your credit score before applying for any form of financing. That way, you can fix it prior to applying if you have bad credit.

Still, to have a loan amount (up to 30 to 90 days), some conventional lenders can be slower and may need more paperwork. In addition, many lenders have a business obligation period, meaning you will have to wait for a certain amount of time until you’ve been operational. Therefore, you may not be able to wait for a conventional lender to accept your request if your equipment needs are pressing.

You Own the Equipment

Depending on how you look at it, complete ownership of business equipment could be an advantage or a disadvantage. You’re borrowing money to buy and own equipment when you take out a small business loan for equipment. Equipment leasing is an alternative to this. You make monthly payments for an equipment lease to use the equipment, and then return it when the lease is over.

Owning rather than leasing may be costly for your organization for machines that could become outdated or depreciate relatively quickly. For long-term equipment, however, ownership is typically more affordable.

Equipment Loan Advantages

 

Receive money for buying, repairing, or leasing equipment

Even if your company is well-established, chances are that you don’t have enough money to spend on equipment. Fortunately, cash is just what these forms of loans offer for equipment.

Since business equipment loans allow you to specifically borrow money to pay for equipment, you don’t have to wait until you have the money on hand to make a big purchase or repair equipment that you already own.

Getting this money would boost the bottom line of your business; waiting to buy, lease or repair equipment may seriously hurt the annual revenue of your company especially if the equipment is crucial to your operations. For example, you’ll need to fix or replace it as soon as possible if your restaurant’s oven fails.

Spread The Purchase Cost

Cash flow is a constant issue for any business owner, and acquisitions of equipment only exacerbate cash flow problems further. However, since a loan for equipment allows you to spread the expenses, this form of loan helps address the issue of cash flow raised by acquisitions of equipment.

Let’s assume, for instance, you need to buy a large-format printer for several business locations, and the total cost would be $100,000. You could put down 10 percent with an equipment loan, and pay an average interest rate of six percent for five years. That means you’d pay $10,000 on day one and make only $1,700 in monthly payments over a five-year period. Without an equipment loan, you will immediately need $100,000 in cash to purchase the equipment directly.

No additional collateral needed

You may be forced to set up assets that you already own, such as real estate or cars, to apply for a term loan. This isn’t necessarily the case for a loan for equipment. Alternative and online lenders would typically be happy with using the equipment that you purchase as collateral for the loan. This can be very positive since the downside risk is greatly minimized by this.

Raising the potential revenues of your business

If you obtain a loan for equipment, it could increase the overall efficiency of your business. For example, getting additional machinery could help you complete orders quicker if you own manufacturing business. You might also be able to take on more clients, which will raise the bottom line.

You will be investing in your company by having an equipment loan and will even be able to gain more money in the long run!

Conclusion

Equipment loans are intended for a very particular reason, unlike many other forms of financing. Although that keeps these loans from being flexible, it also means that equipment loans can be extremely productive for the right individual. Take the time to perform an analysis, consider your needs, and decide the type of equipment your company requires to help yourself make the final decision. That way, to make the best decision for your business, you’ll have all the details you need.