How to choose a loan for small business
Any business at different stages of development feels the need for additional investments. Before applying for a loan at a bank, an individual entrepreneur must carefully weigh this decision and analyze his / her ability to return the requested loan.
Choosing the best loan product
Banks offer entrepreneurs standard loans, commercial mortgages, credit lines, revolving credit limit cards, overdraft or revolving credit. Depending on the field of activity and the purpose of crediting, you can choose special business loans for enterprises in the sphere of trade, services, and agriculture. When choosing a loan product, it is necessary to take into account seasonality and peculiarities of a business, since banks individually approach the formation of a repayment schedule and the provision of a “credit vacation”.
Selection of the optimal borrowing period
If the purpose of borrowing is replenishment of working capital for a small business, then the crediting period does not exceed one year, or the duration of one business cycle of the company.When purchasing fixed assets: transport and equipment, the term of crediting cannot exceed their term of operation and payback - 1-5 years. If the goal is to invest, launch a new project and purchase real estate, the borrowing period is 5-7 years.
Estimate of the required loan amount
An application for a loan should be justified not only by the desire to receive borrowed funds, but by a business plan for the implementation of the project, which must be financed. It can even be issued on the bank 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 mandatory loan payments at the expense of profits, without withdrawing free money from the company's turnover.
Terms of loans
When lending to individual entrepreneurs, one of the main criteria to be assessed by the lender is the identity of the borrower, since he is responsible for the activities of the company and the management decisions made. The future prosperity of the company depends on how well he understands the specifics of his own business, and what his business acumen is.
Helpful advice.Before going to the bank it is worth preparing a little. The creditor bank assesses not only the business reputation and credit history of the enterprise, but also the personal experience of borrowing an entrepreneur as an individual.
The business must provide additional loan repayment guarantees. In the quality of security are:
- assets that bring income to an entrepreneur, acquired with a loan,
- insurance of an entrepreneur and his property
- the guarantee of business partners, family members, acquaintances of private and legal entities.
As additional guarantees of return, some banks offer borrowers to issue an additional agreement to the bank account agreement to which the main financial flows from the IP activity flow.
According to this agreement, the bank may unilaterally, if the client violates the terms of the contract, write off the corresponding amount of overdue debt money without notifying the borrower. This right of direct debit is used by tax authorities, writing off overdue payments of taxes and fees from the debtor’s account.
Transparency and legality of business
Cleanliness of the financial condition of the entrepreneur and competent accounting conduct increases the chances of approving an application for a business loan. “Gray” business schemes and tax evasion can be grounds for refusal, because they do not allow to assess the real state of affairs and the official level of income of the company. Not surprising, because the bank does not credit the purchase of kitchen furniture or small household appliances.
If you are ready to receive a loan on the specified conditions and match the main criteria of the bank, it is enough to apply to a financial institution with a full package of documents confirming the right to conduct business activities 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.
The best credit terms are provided by the bank to their customers, therefore, first of all, it is worth contacting the bank where the account of the entrepreneur is open. The bank appreciates such loyalty and will show confidence in the regular customer by offering more flexible terms and a low interest rate on the loan.