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13 Tips To Help You Get Closer to the Finance You Seek for Your Business
Many have tried to raise finance for their businesses; some have succeeded with ease while others are not so lucky. This has also affected people who want to start businesses but the big setback they face is the lack of capital that keeps them at bay.
Here are some tips that can help you get closer to getting finance to infuse in your business.
In most cases the first place most business people think of getting help is the banks in form of loans.
Tip 1: The Credit Officer is not a Robot
The first thing that you need to remember as you seek finance from banks is that on the other side of the loan application process is another human being. As you keep this in mind, make it easier for the credit officer to approve your application. While filling in your forms, make everything presentable and organized. This will help the credit officer to easily review your application. A loan application process is similar to the visa application process. The effort you put in the application of a visa should be similar or even better to the effort you put in the loan application process.
Tip 2: Attach Notes & Pointers
Make sure that your application forms are correctly filled. Attach all the supporting documents that are required. Do not ignore such requirements. In case for any particular reason, you may not have any of the required documents, do not ignore them. Attach a note to highlight the reason as to why you are not in a position to provide them.
For example, most banks will ask for audited financial records of your business. If you are a startup, you may not have this. Instead of ignoring this requirement, you can point out that you have been running for less than 6 months, therefore you are not in a position to provide the audited accounts. You can thereby present any financial records that you have been keeping for the few months you have been in operation or in the case of a new business, your personal financial records.
Tip 3: How Well Do You Know Your Business?
Have a business plan. Even if you are not considering seeking finance from a financial institution, you need to a write a plan of your business. It keeps you focused. In the plan state the vision you have, define the product or service you are offering, how you plan to grow the business and how you will make money while doing it.
With a business plan, you will be able to convince other investors who can help you get the finance you seek. It also shows that you have critically thought about what you want to do and how you shall flourish. One cannot grow without a plan. Be ready to defend and stand for your business plan when criticized.
Do not be like most people who write a business plan only when they are asked to provide one. Have yours ready. Credit managers who have been approving loans for a while can easily point out a business plan that was written overnight.
Tip 4: Face to Face Meetings - Always Better
When presenting your financial documents especially the business plan to a bank or investor try and do so in person. You carry a lot more weight when you explain your business plan than when one reads it on paper. You can easily convince anyone when they hear it from your mouth. As you explain your vision, strategy, product or service, one can easily tell you believe in what you are doing or about to do.
Getting a face to face meeting with the credit officer in a large bank can be difficult but in smaller institutions, this can be organized. You should consider approaching a bank that has a friendlier open door policy as you select a banker.
1. Form a relationship with your credit officers and bank
2. Have a written plan
3. Keep proper records
4. Approach other avenues apart from banks
Tip 5: Keep your Credit Officers Close
If you are starting up, it is advisable to talk to credit managers of the bank before opening an account. They can guide you on the things they look for in a business and account history before they approve loan applications. This will help you have a clear picture of where you want to be in 6 months or a year’s time when you are ready to borrow.
If you are already running a business, it is never too late. You can still approach the credit managers of your bank and they can point you in the right direction. This will help you prepare in advance before you start applying for your loan.
Tip 6: Reduce Your Risk; Increase Your Chances
Banks make money out of lending it out. Before they do this, they normally look into two things; risk and returns. To evaluate the risk, they will look at your ability to service the loan you seek. They will look at your business cash flows. Does your business have a sustainable flow of cash?
To prove this you need to have proper records of every cent you receive and spend. No matter how little or insignificant it may seem. You will need to keep track of everything. This will go a long way in convincing any investor, not only the bank, that you are in a position to manage the finances of your business.
Tip 7: Audit Your Books
Once your business runs for 1 and a half years (18 months) have your books audited. Normally when you are seeking finance from a bank, they will ask for some form of collateral or security. This could be in the form of shares, property, unit trusts, savings etc.
However if you keep good records and have a strong business sense, which can be gathered from your books, some banks may offer you part of the loan unsecured.
Tip 8: Start Small - You Will Get There
What happens if I can’t get the security the bank requests? Start small. You may be looking for $500,000 but the bank may not lend you this amount without security. However it may be willing to offer you an overdraft of $50,000. Start there.
What the bank is trying to establish at this point, is how risky your business is. They would like to get comfortable with you before offering you the amount you seek. Get the overdraft and build your relationship with the bank and soon enough your credit limit can be increased.
Tip 9: MFI; Micro Finance Insitutions
Another approach you can use if you lack the security is approaching micro finance institutions. They are usually willing to offer loans of small amounts without security. However they charge higher charges than banks. If you are looking for a small amount that you can repay quickly, they can help you bridge the gap in your business.
Tip 10: Credit Terms
You can also consider approaching your suppliers to give you credit terms that your business can comfortably maintain. This could be a credit term that allows them to supply you with goods/services that you can pay back in 2 months’ time. However this approach will only work if you have a sustainable relationship with them.
Tip 11: Save Save Save
You can also access the much needed finance you seek by approaching Savings and Credit Co-operative (SACCOs) or credit unions. Normally these institutions lend money once you save with them. They can lend you three times your savings. If you haven’t started saving in one, you should consider starting.
Tip 12: Limitless Avenues
Do not limit yourself to banks and other financial institutions. Be on the lookout for other avenues like angel investors who may be willing to invest in your business. Angel investors are individuals who are usually interested in businesses or projects that they can help as they also get higher returns than the returns they get from traditional investment avenues. This could be anyone starting from family, friends or even the credit officer. He or she could not approve your loan according to the banks lending policy but may be interested in investing as a private investor. If not, do not be afraid to ask if he or she can point you in another direction that can help you access the funds you seek.
Tip 13: Venture Capitalists
Another avenue you should not eliminate is the use of venture capitalists. These are investors who have access to large pools of funds that are ready to invest in big projects. Normally they will give you finance in exchange of ownership for a specified period of time.
However they are not as direct as other avenues of finance. They will usually specify the industry or projects they are ready to invest in as well as the amount they can bring in.
All in all you should not lose hope. Do not feel as though you are pushing the people around you to accept your idea or investment plan. Ask politely and be patient. You may be surprised by the responses you receive. I wish you all the best.