Using Bank Loans to Fund Your New Business
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For an entrepreneur, raising capital for a new business can be as easy as picking up the telephone and calling a wealthy relative for money or as tedious as applying for federal and state grants. While each option certainly has its pros and cons, the entrepreneur should conduct a fair amount of research to make sure that the selected choice(s) is/are appropriate for his/her unique situation.

Small business bank loans
Some people may choose to obtain commercial bank loans to fund their small businesses. While this may seem like a good idea to raise the needed capital, one must not rely solely on a bank loan to cover all expenses for a startup since most startups require additional amounts of money to sustain. The borrower should also keep in mind that a monthly payment schedule and maintenance fees are required almost immediately. Guidelines may differ from bank to bank; however, there are certain standards that all banks abide by when approving an applicant for a small business loan.

1. Referrals
Entrepreneurs will often select a financial institution they normally do business with or have had some business tie with in the past. It is always a good idea for a new business owner to select a bank which they have already had an existing relationship with. If none exists, then local businesses, attorneys, and accountants are other good resources for a lender referral. If these contacts have had strong business relationships with the lenders, then the entrepreneur will have a better chance of obtaining the needed funding. If for any reason the entrepreneur has doubt that a bank will respond favorably on his/her behalf, then they should request funding from other banks where they may have a better standing.

2. Credit history
One’s credit history is extremely significant for small business loan approval. Financial institutions often rely on an applicant’s solid credit rating as the basis for the acceptance of a small business bank loan. If an entrepreneur has stellar credit and a great business history with a bank, then his/her chances of receiving funding can be strong. However, a poor credit rating will damage the chance for funding. Before approaching a lender, the entrepreneur must first repair their credit history and then proceed with the application process in order to be considered for a bank loan.

3. Business plan
Another important piece of the criteria for entrepreneur to successfully obtain small business loans from their banks is to present their business plan to the prospective lending officials. The business plan has to be documented on paper since it is ineffective and not enough to remember every aspect of a plan through recall. By organizing and documenting one’s business ideas, company objectives, and financial forecasts for easy accessibility, the entrepreneur will show their prospective lenders they are serious about obtaining a loan and have properly planned their new venture accordingly. Presenting a well-detailed business plan can certainly increase one’s chances of raising capital through a bank loan.

4. Prospective customers
In addition to credit history, referrals, and the presentation of a business plan, the new business owner should also provide the lending officials with prospective customers who are willing to purchase their products and services. By having gathered a considerable amount of consumers, the entrepreneur will show the bank’s lending officials that the business has the chance to succeed and that they will be able to pay back all owed loan debt.

5. Backup plan
Entrepreneurs will often be rejected multiple times for bank loans before one financial lender may approve them. While the concept of rejection can be extremely difficult to bear, new business owners should be persistent in their funding quest. They should ask lending officials the key components behind the loan denial, learn from those results, and mend any issues before approaching the next lender. In addition, they should implement an alternative plan to raise the needed capital if they are not able to obtain a commercial bank loan. Lenders may ask the applicant their alternative strategy, and rather than show discouragement, the entrepreneur should exude confidence in their business ideas and in their goal to obtain funding.

Obtaining a bank loan for startup capital is a great way of running a new business through a reputable company. If an entrepreneur is serious about their business ideas and utilizing ways to market those ideas, then it would be very beneficial to get funding from a local bank. While certain restrictions may apply, most business owners who qualify will have the advantage of utilizing those funds immediately for their new business endeavor. One downside of commercial bank loans is the fact that a solid credit history is required for consideration. In addition, high monthly payments with interest and maintenance fees may be costly, especially for a young company that has not yet established a solid track record of financial success.

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