If you have ever tried to get a business loan you will know how difficult it can be. It can almost seem that it is not worth trying to borrow sometimes. Some small business owners will even take out a personal loan to finance their business activities but this can cause lots of problems and pressure on household finances.
To lend to a business a lender will need to feel that they have complete faith that they will be able to repay the money that they have borrowed. They will want to see a business plan and see where the money will be invested and how it is predicted that the money will benefit the business and increase the profits. They will need to see that the profits will be increased enough to cover the cost of the loan repayments.
Banks do seem to be lending a lot of money lately, but they do not always extend this generosity to businesses. A lot of loans they do approve are secure loans so they have some comeback should the repayments not be met. They are able to repossess items and sell them to get their money back. With a business this is not something that can be done.
Sadly a lot of small businesses do not succeed. It can be much more difficult than anyone may think to start a business. There can also be a lot of high expenses when setting up and then there can be a period where very little income comes in. This can be very difficult and the new business owner is not able to pay themselves any money and could even get into personal finance difficulties as well. As lenders are aware of this it will mean that they are very reluctant to lend money.
A lot of people also start a business with very little knowledge of what they are doing. It can all seem like a great opportunity and great fun but there is so much to learn and very little time to find your feet before you need to get going. Therefore it is really important to show a lender that you are ready for the challenges ahead.
Already having secured some funding in the business can be a positive step forward. If you can show a lender that there is someone else that is prepared to lend your business finance then they are more likely to agree to doing it themselves.
Even established businesses may have trouble getting loans for similar reasons. They will still have to show that they are very capable of making the necessary repayments. As business loans are usually long term ones it is hard to know what might happen in the future. The lender ill want to be sure that they can be paid back and they will want reassurance that there will be the capital available in the future to be able to do this.
This problem of not being able to get business loans means that some businesses now look for alternative ways to get finance. Crowdfunding is a popular way for them to try to do this and peer to peer lending is also an alternative loan which is sometimes used. These can be more successful for some businesses particularly if traditional lenders are being reluctant to lend to anyone, which they can be at times.
It is really important to be able to prove to a potential lender that you have a realistic long term plan of how to make enough money to pay the loan back. You need to show them how that investment in your business will lead to increased profits and therefore mean that you will have the money available to make the repayments. It is necessary to show all the figures for this and to provide evidence for your conclusions. If you can perhaps show how other businesses have grown as a result of a similar investment this would be really useful. You also need to be confident and chat to them, explaining your reasoning so that it all makes sense to them. You may have better luck from a local lender who may already be familiar with your business or perhaps with your local market.