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How to Finance a Small Business


Contents :-

How to Finance a Small Business

How Much Money Do You Need?

Or, how much can you reasonably expect to get? Refer back to your business plan. If it still doesn't answer the question, let's go step-by-step. In Session 8, Accounting and Cash Flow, you learned how to predict future cash needs by using a cash flow control form.

The cash flow control form will spell out all of your sources of income and expenses. For example, some expense items might include:

• Buying supplies and inventory while waiting to get paid

• Paying payroll and rent

• Buying equipment and fixtures

• Getting a computer

• Buying the business

Prioritize those areas where your options are limited to paying in cash, and review your alternatives where there may be another way.

For example, it is not necessary to pay all cash for a delivery truck when you can rent or lease one.

Next, review what might serve as collateral for your loans

Things you must do to maximize your chances of obtaining a small business loan

To get approval for your loan application, you must be able to meet the lending criteria set down. Some organizations are more risk averse than others, and will therefore have more stringent criteria.

To vastly increase your chances of a successful funding application, you will need to present the following information.

1. The reason for the loan. The lender will be looking for something that fits within the normal range and expertise of your business. The amount may cover a number of items, so you will need to cover each.

2. The amount required, and the repayment term of the small business loan you want. (e.g. $10,000 term 5 years, payable quarterly).

3. Decide how much money you need to start or expand your business.

4. Details of how you will repay the amount borrowed. For example, “From the increase in profits of reduced running costs of the Whizz-bang Go4It and ongoing business cash flow.

5. Details of security you will be able to offer to the lender. This will act as reassurance for the lender. If you’re not prepared to put up some aspect of security, then why should they?

6. You will need to include your business plan which will serve to answer essential questions relating to management capabilities, information about the market in which you operate, and the kind of business you are etc.

7. 3 Years financial statements. You will need to present quality financial information from your small business book keeping software, preferably signed off by your accountant or tax advisor.

8. Latest Set of Management accounts. Again produced from your accounting software.

9. Accounts receivables (debtors) and payables (creditors) ageing reports.

10. Principal’s financial statements. – Particularly required if some form of security is necessary.

If you are a new company, the emphasis is going to be on your business plan and the security (also called collateral) you or your business can provide against the loan.

If you are currently relying on your accountant to provide you with the information outlined above, I recommend that you make a small investment in small business book keeping software such as QuickBooks.

Accounting software will prepare the necessary reports from your data entries, and also helps you reduce the amount of time the accountant needs to prepare your statements, which should reduce their fees, more than paying for the investment.

You must take the time to practice presenting your business loan proposal to iron out any glitches. Practice on your colleagues and family (you never know, they might be so impressed, they'll invest or lend!).

It will also help if you role play the lender and come up with as many objections to accepting the deal as possible.

The more time you take the better your chances will be. (But Remember don’t fall into the analysis paralysis trap!)

One of the reasons why using Commercial Finance Brokers to find you a Small Business Loan is on the increase is that they are experts in packaging your request and searching out a lender that is interested in your kind of business.

They will save you the time and hassle of pulling all the information above together, leaving you to get on with running your business.

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