Banks and lending institutions have been the traditional go-to solution for first round capital raising or seed funding for new ventures. Each lender will have their own attitude and risk assessments for loans so it's important for you (and them) to really understand what you are seeking funding for, how much you need, what you'll be able to service, and how much it will cost the business over the length of the loan.
Although a loan can be a risk for your business, sometimes it’s one worth taking. Using a loan for the right reasons, at the right time, can take your business to the next level.
Typical areas that need business loans include:
||Getting a second site or enlarging the space you currently operate from.
|New equipment or inventory
||Improving equipment can lead to increased production and return to the business. Also the securing of bulk inventory can lead to cost savings and resulting margins on each unit produced.
|Realise a new opportunity
||We don't always have cash on hand when a great opportunity comes along like a new joint venture, a new market opens up, or you have an 'aha' moment and can see a new way of doing something faster, smarter or better but need a capital injection to get it off the ground.
||Taking the step to recruit new staff can pay off in a number of ways. It can free up your time to pursue new customer acquisitions, tender for more projects, or increase production or sales. A logical appointment, i.e. someone who is worth the time to train, should provide value and a return on your investment.
||This is a short-term fix for situations like seasonal trading, or to compensate for early stage delays in revenue from contract terms when outgoings are high. Most businesses experience peaks and troughs in their cash-flow so this can help even them out till you can trade with cash reserves to be self-sustaining.
Tips on things to think about before you apply for a loan:
- Security - do you need to go personal guarantor, or do you have business assets that you can use as collateral?
- Track record - have you banked with them before, what is your credit history like, etc.? Have you repaid any previous business loans or do you already have one?
- Interest rates and terms - make sure you know how much it will cost you. Is the interest calculated on the balance and can you pay lump sum payments to reduce the cost overruns of the loan?
- Hidden fees - are there any establishment fees, early repayment fees or monthly account charges. These all add up over the term of the loan.
- The process - understanding the process and timeframes is key; if you are seeking funds for a opportunity you will want to know the bank's position as early as possible.
Borrowing / lending is a two way street, so it's important to have all your numbers, planning and investment plan in place. Knowing whether you need the money all at once is also key - a staggered loan with key metrics to work towards before drawing down further funds reduces the risk to the lender.
Have a 'Plan B' just in case 'Plan A' doesn't work.
Most banks and lending institutions have great templates and resources with checklists of information you need to provide. However if you'd like help to make sure you're putting your best foot forward then get in touch with us for some independent advice, guidance or funding support for your capital raising proposal.