It is better to be in a position of not having to seek a loan when commencing a new venture. When borrowing there will be a repayment schedule that includes a high cost of the interest being charged. Many people will be faced with the need to borrow in order to get their business off the ground.
If you follow a few rules you should be able to easily secure your finance. Finance can be obtained from a number of sources for your new business. These can include drawing down your own savings or pension funds, borrowing from family or friends and borrowing from commercial organizations such as banks and building societies. Often you will need to obtain funding from several different sources, with a lender only loaning you money if they see others prepared to invest.
If you use your own funds, or get it from a bank or other lender, you must have a comprehensive feasibility study or business plan ready. This will help the bank to decide to lend or not and also tell you if your business idea is feasible. Any business start up must have a business plan and funding organizations will most likely turn you away if you do not have one.
The financial expectations of the venture will be presented in the business plan along with a full picture of the market conditions, size and number of competitors, resume of the promoters, threats and challenges to the business and sensitivity to any changes in the assumptions that have been made. Details like these are every bit as important as having an idea of the amount of money you want to make.
Your business viability will be judged by the lender and they will assess the level of borrowing you want. Generally they will then lend if the amount looks reasonable and the business plan is sound and indicates that repayments will be made comfortably. They will also seek some form of security over the loan they may be prepared to advance you.
Security can be given over any type of asset, from a property you own such as your house to the value of the debts your business may have. Normally the lender will want security they can easily realise if your business runs into difficulties and defaults on the loan. In some cases they will accept a personal guarantee from you or someone else, though any guarantor should have some financial standing for this to be possible.
It may be possible to obtain funding in the form of a mortgage over your house or other property without providing a detailed business plan to the lender. By lending you only a proportion of the property's value but have security over the whole, they will feel much safer. This means that they can force a sale of your property to repay your debt and can sell at less than market value. In these cases it is essential that you have a business plan for you - so that you can be happy that your business idea is sound.
Remember that a lender will expect to make money from you when it advances you funding for your business and will want to minimise the risk it faces. So you should attempt to be accurate with your estimates included in your business plan and certainly include a generous element for the unknown.
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