Is Getting A Business Loan For Your Startup A Good Idea?
- BY Jaspreet Kaur
Feature Writer, BusinessEx
- Nov 03,2020
- 13 Mins Read
While establishing a startup, money plays a crucial role. Capital is needed to initiate the business as well as manage its operations. In the absence of it, your business model cannot be functional. You mostly opt for your personal savings and direct them towards capital infusion. When savings are not enough, then you would have to go for a startup business loan to fulfill capital infusion as well as working capital needs.
According to your business potential, you have to select an amount for a startup business loan. Or else, you would face difficulty in repaying the loan as it will incorporate principal loan amount and interest.
Struggles in Getting a Startup Business Loan
In the beginning, it becomes tough to get a business loan from lenders. From lenders’ point of view, they have to engage into the risky venture along with you if they lend a business loan. Although, they cannot estimate the growth trajectory of a business, they do not have confidence in first-time entrepreneurs. While businesses that have been running for a short time without any external monetary help can attract lenders. Such companies can exhibit transactions of the business while applying for the loan. Their P\&L (Profit and Loss) statement displays a true picture of the business.
Before applying for a startup business loan, there are various things that you have to keep in mind. Here are some of things that are:
For initiating a business, loan is paramount for entrepreneurs. Before approaching lenders, you need to have clarity about your enterprise and other allied things. You have to interrogate some questions from yourself before trusting your wit and infusing time, as well as energy, in realising your dream. Here are some crucial questions that you have to address:
What is the purpose of your business?
Which industry will you work in ?
Who will be your clientele?
What will be profit margins? How will you be using the loan amount?
Meeting Lenders' Expectations
You have to be cautious while approaching banking institutions for loans. Banks will consider every small and large risk prevalent in your venture. Following this, you have to submit various documents in order to get your business loan approved. Contingent on the business, they would ask to give collateral or no collateral and repay the business loan.
Before applying for the loan, you have to be clear about the amount of loan that you would need. Banking institutions will tell you how much loan can be accessed. However, you need to know how much capital is needed for the business. You have to consult an accountant before going to the lenders. You will have to have a word with the accountant and explain to him your business’ condition. He will advise you about the loan amount that should be asked from the banks. He is the apt person who knows the potential of your business and you. You can easily follow his instincts and rely on his suggestions.
For availing a business loan, you have to exhibit creditworthiness of your business. If you have good credibility, then you can get a loan easily with low documentation. Despite the loan type, it is crucial to have good contacts and credit that give a true picture of you and your behaviour. To get a high credit score, you have to repay all personal loans taken by you in a timely manner. Besides this, you have to disburse bills and should never get into the defaulters list. These things are essential to have a positive credibility.
Before applying for a startup business loan, you need to know of these essentials. Based on these factors, you would be able to ascertain whether you need a business loan or not. Apart from this, if there is other factors relating to a business loan, then share with us in the comment section.
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