Funding your startup is one thing which keeps most of the owners wide-awake at the night. You have the business idea, the skills, the resources, but without a business loan, you cannot turn the idea into reality. Say hello to bank loan!
We use banks in our everyday life. Which is why we all have a certain relationship with the bank. Whether it a credit card, an account, or both. However, sometimes, you’ll face issues with the finances and for that you’ll have to get loan from the bank. At first, bank will be reluctant to provide you loan because of the lack of your business expertise. No need to feel guilt about it. This happens.
Before you start worrying, I would like to inform you that I’ve three businesses in place and out of them two started with a business loan. How I did it? Glad you asked. Let me start with some of the pros and cons of getting a loan from the bank. Next, I will suggest some tips with which you can get your loan accepted. And the reasons which might get your loan rejected.
Pros of getting a bank loan for your startup
- You’ll retain the equity of your company, and the bank won’t care how you run the company.
- If you already have equity tied to something like a house or a property, you can borrow a loan against it.
- Your money is guaranteed for the whole term without worrying about any overdraft.
Cons of getting a bank loan for your startup
- If you have a loan against anything such as your house, failure to repay your home loan can result in losing your home.
- Often the bank is unwilling to lend loan to startups.
- If there are monthly fixed payments to be paid to the bank, when the sales are down, you might find it difficult to pay back.
- The loan that you take from the bank is not flexible. If you’re willing to payback early, it won’t provide you any benefit.
If you decide that you want the bank loan, here are some tips which can guarantee that your loan will not be rejected:
Know exactly what you’re looking for
When you’re applying for a bank loan, think carefully about what exactly your end-goal is. For instance, my friend who owns a leading mobile app development company wanted to expand his business by offering web design & development services. So, he applied for a bank loan.
What do you want to do with the loan? Are you willing to expand your current product line or you’re willing to grow your business by entering a new industry? How quickly can you repay the bank? Will you be able to repay the bank soon, or it will take time to generate revenue?
Answer these basic questions before you ask the bank for the loan. Also, keep the interest rate in mind when going for the bank loan.
Look around a little more
It is not necessary to stick around on a single bank. There are various banks who’re offering much better loan options than others. Consider doing some research and find out which bank will offer you the best deal.
Compare the various options which every bank is offering you. Be it fixed interest rate or no charges for early payback. Every bank will offer you something which differs from another bank. It is you, who need to decide which offer is best for you.
An amazing business plan is something which can win a funding from the bank. Add all the necessary details which you can possibly gather. Mention the market research, your team, how you’ve evaluated your business idea, your sales prediction, and what is the support that you’re getting from the investors?
Ensure that you provide the maximum amount of information on how the loan money will be used. Show the bank that you’ve done your homework well and you need the full amount to grow your business. Mention the roadblocks that will occur and mention that in the financial forecast.
Get yourself hyper-organized
By organizing everything you’ll give a green signal to the bank that you’re ready to take the loan. Get your financial documents in order. Before asking for the loan ask yourself questions which you think the bank will be asking from you.
This will prepare you for any unexpected questions that the bank will ask you. And the process will be fast.
The right pitch
When you’re ready with all the legal documents and history of your financials, it is time for the grand pitch. Ensure that you show enthusiasm, passion, and the direction to which you want your business to go. Outline the possible growth potential and how the loan will help you to achieve your business goals.
Why might you get rejected?
- You have a past of poor credit, missed payments, and bankruptcy.
- Unrealistic projections. If the figures that you’re showing are not adding up or you don’t show confidence to turn revenue into profit, you’ll be turned down.
- You haven’t bought any loan in the past and don’t know how to keep track of the loan.
- Miss information with personal details, variations of the name in documents.
What to do if you get rejected?
If you don’t get a loan from the bank, no need to feel depressed. There will be a time when you’ll be faced with such failures, especially in the early stage. There are various other funding options which can get you the funding. The other options may include angel investors, crowdfunding, or startups loans.