Recently a research group namely Global Entrepreneurship monitor conducted some studies and in its report it is stated that the average expenditure in starting a business in the US is about $70,000. It also reported that 79 percent of the failed businesses in the country were caused as a result of inadequate funding or little money at the time of the starting of the business.
Tips for starting new business
When you approach a bank for a business loan, you find that they ask so many questions and it may seem a daunting task to arrange a business loan. But once you understand the documents required for getting a business loan, you find it easy to deal with the bank managers and get your loan sanctioned easily. So in this article, I am going to discuss the important documents required or the criteria to be fulfilled for making you qualified for a business loan.
Banks lend money to start ups as per the program of SBA and a portion of the money so lent is protected by the Government reducing the risk of the bank. So it is important that your business has assets that can be pledged to the bank. This means that one can pledge the equity of his house to get a business loan.
Business plan is a basic requirement for commercial loan application. You can produce a lean business plan also. Whatever it is, banks always require standard summary of the company which includes the products, team, market, financial details etc.
Financial details of the business
Financial details of a company like present and past loans, debts cleared, debts still pending, tax Id numbers, contact information addresses etc are always needed by a bank for considering a business loan application.
Details of accounts receivables
Bank requires the details of business loan applicant like the history of sales and payment relating to every account of the applicant. If you know these details it will be very good and if you are not knowledgeable in these matters it will be better if you can gain some information regarding this from the banks where you are having an account.
Details of accounts payable
This information is almost same as the above mentioned information except for the fact that the banks need credit references of the companies selling to your business and capable to vouch for you because of their experience with you.
Complete financial statement
Your balance sheet showing all your assets and liabilities and profit and loss statement for the last three years have to be given, if you do not have it up to date, at least the last years or what you are having with you now will have to be given. If you have collateral security to be given the missing of this statement will be overlooked by the bank. One important requirement in this regard is that the statement had to be audited. Most businesses often have audited statements ready with them. But this reviewed or audited report of financial statement become unimportant if you can pledge some collateral as additional security for the loan you are going to take for business purpose.
Personal finance details
Financial details include details of liabilities and assets like vehicles, home, credit card accounts, investment accounts, mortgages auto loans etc. In the case of multiple owners in a business the bank usually needs the statement of all the partners or of the partners who have substantial shares.
In order to reduce financial risks, the banks often ask the owners of a company to insure themselves against deaths. The insurance should be so adjusted that the payment on death of the insurance holder goes direct to the bank so that the loan is paid off at the first instance itself.
Agreement of future ratios
In commercial loans some covenants will be there regarding the ratios to be kept by the borrower in terms of key ratios like current ratio, quick ratio, debt to equity etc. If the financials fall below these accepted lower levels, then the borrower is considered as under default of the loan.