In Latin America and Spain and some other countries, smart entrepreneurs with brilliant ideas find it difficult (and often impossible) to get loans to start a business of their dreams. “Banks do not make loans” is a very common complaint I hear most every day.
In most countries of this continent, 70% of business loans requested are not approved.
Are banks run out of money? Of course not!
In fact, I have here a fact that will make you angry enough: the volume of loans granted to the banks if large companies and multinationals are increasing every year.
What is the secret to you then granting you a small loan to start your business? How can you become one of the few entrepreneurs who leaves the bank with a loan for your venture into your hands?
In this article I will teach you everything you need to know to apply for one of these loans and get the capital that you need from your bank!
Wait a minute. Are you sure you need a loan to start your business?
Many people make mistakes with bank loans. Before you continue reading this article, I want to clarify something important.
A bank loan is not the only way you have to get money to start your own business and make it grow.
What’s more bank loans are probably one of the more difficult and expensive for forms startups and small businesses to achieve capital.
Unlike friends, family and private investors, who can expect to benefit your business and get back what You borrowed, bank loans and interest must be paid on the date set for it, whether or not if your business is making profits.
If you’re not careful, high-interest rates can swallow all profits from your endeavor.
So think again before you answer this important question: are you certain or confident you need a bank loan?
If you want to know more simple and effective to raise capital for your business alternatives.
But if you think a bank loan is what you need for your small business, keep reading please.
What type of loan to start a business is best for you?
There are different types of loans and the first step in a serious entrepreneur is to know what is the ideal for your business.
Depending on your needs and the type of business you want to start, there are basically two types of loans for business : the overdraft and loan installments.
It is a type of loan that allows you to take money out of your bank even if you have little or no money in it.
If your bank gives you a credit to discovered $ 50,000, it means that you have access to this money even if your account balance is $ 0.
This type of loan is usually short-term and last 6 to 12 months before you can renew it.
For this reason, you should only use it as a capital for short-term activities such as paying the wages of your employees at a point in time or to purchase goods to sell to a customer.
- Its main advantage is its flexibility; you only pay interest on the amount of money you use. If you do not use, you will not pay interest.
- Its disadvantage is its short term: never use such a loan to buy equipment that you should pay more than six months, or to rent a room for more than one year. Use an installment loan for it!
Unlike the previous, this type of loan is a sum of money which will grant and begin to generate interest in the same moment you receive it, you use it or not.
This loan is best for long-term projects and can last from 2 to 10 years, depending on your needs and the agreement you make.
- It is ideal to buy equipment, rent a store, or buy a delivery truck for your business.
- But remember: The longer the loan, the more interest you’ll pay.
These installment loans have to return the bank to pay a fixed amount each month for the period that you set. If you order a period of 3 years, you’ll pay 36 installments of the loan with interest.
The reason that banks will not grant a loan for your business
Now that you’re convinced that you need a loan to start a business, it’s time to reveal why banks do not make loans to small businesses and entrepreneurs.
They call it “high risk”.
This simply means that they believe that there is a very high chance of something going wrong in a small undertaking and that it can not repay the money borrowed – and their interests -.
If your bank believes that grant you a loan is a “high risk”, your application will be rejected!
Unless you can prove, show or do something to reduce the risk to a lower level, very few banks would dare to give no more credit to launch your business.
Think for a moment. Banks make 80% of their money from the interest on these loans. And they prefer to offer them to customers who have a “low risk”.
This is why they prefer to lend to large companies and multinationals that are already successful companies and have a business model proven to work, and a reputation already created.
So now I’m going to teach 5 effective ways to show your bank that your business is “low risk” and thus ensure that it will grant the loan without putting any obstacle.
5 ways to increase your chances to grant you a loan for your business
Like I said before, that your bank give you a loan to start your business, it is imperative that you show that you have a “low risk” of failure.
And if you can implement any of the following five methods to minimize that risk, you increase your chances in the eyes of your bank to get the credit you need to launch your venture.
1. Get a contract with a client (or a purchase order)
One of the greatest risks to your bank concerned is if your small business will be able to sell enough products or services to generate the money needed to repay the borrowed money.
A contract with a client trust (this is usually a company or organization with business performance) will prove to the bank that there is someone willing to pay for your products or services (and can afford).
This is best accomplished by contacting several companies to medium businesses showing them what you sell, and agreeing to sell your products or services, or part of them.
2. Establish your property as a safe
If you decide to order any of the loans to start a business there, you have to put as valuable to the bank to sell collateral to recover his money; if you can not afford it.
This can be any valuable property you have as your home, your car, valuable jewelry, and actions you have in the market.
These properties will be yours unless at some point you can not repay the loan. If you get to that situation, the bank would take to recover the money they lent you with interest.
Banks often insist that the value of these properties is the same – or greater – that granted credit. And also want to see proof that these objects are your property.
CARE! Use your property as collateral is a serious decision that will change your life and your family. Make sure that your business well make enough money to repay the loan and any interest that may lead. If you are not sure about this, you’d better delete this option.
3. Do you have a good credit history?
If you have borrowed money before and you’ve paid all their interests without any delay, it is a sign of good behavior and that you are a good candidate to grant you a loan.
Banks and other credit institutions verified your history to minimize the risks in this matter.
But if you have applied before a loan, and you have not finished paying, or you did not but gave back payments, your chances of being granted today will fall drastically and insisitirán that you put a property as collateral or give them other forms of security.
Do not think this is something you can easily hide: in both Latin America and Spain or any other countries, banks and lending institutions are strongly connected together to spend financial information on your history.
So make sure you have all your loans paid on time and if not, assume the consequences and not blame your bank for an error that you committed.
4. A detailed business plan always helps!
A business plan is VITAL not only for yourself but also for other matters? This is one of those issues.
To convince your bank to lend money is not a gamble, to submit a detailed business plan and well thought out can help a lot.
On what will you treat your business? Is there a market for your products or services? What is your marketing plan to sell your goods? What will the loan be used?
The more of these questions you can answer, more comfortable and convinced the bank will feel.
Your business plan should be a road map showing all the way from the start to the finish of your business idea. Only then the bank will see that your ideas are clear, and you have an organized and effective plan to generate revenue.
Do not you know how to create your business plan? Click on the two blue links below which will take you to two articles elaborate’s how:
5. Get a guarantor and cover yourself
A guarantor is a person who guarantees payment to your bank if you can not repay your loan.
The guarantor is usually a person with good economy or valuable properties that can be used as collateral for the loan. Having this guarantor increase your chances for you to grant the necessary credit.
So, you give them to banks insurance they need to qualify as a client of “low risk”.
This person can be anyone: your father, your mother, another relative, a friend who wants to help, you can even find an external guarantor to a private investor.
But remember that here you’re exposing not only to you, the other person also play something important, whether property or any other type of collateral deposited by yourself.
So do not let yourself making sure that your business will do well and you can work to meet the payment of your loan and its interest.
Have you had problems getting a loan for your business?
Let’s go through these 6 videos to gain more idea and let me fulfill this article with it. On the left corner at the top you will find the list to go to another video. Hope this article will be helpful for you and dont forget, sharing is caring so share it to let others know of it.
If you’re like many new entrepreneurs and small business owners, you may have been lucky not applying for a loan.
What are the problems you encountered? Have you used any of the five methods mentioned up here? Write your comment below telling us your experience.
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