As the old saying goes, “it takes money to make money”. For many of us, unless our last name is Rockefeller, growing our business means attracting investors or sourcing a loan from a lending institution.
Here are the 6 things that can impact us getting the funds we need to grow our business.
Basically, the banks want to know you’re going to pay them back. They want to know that they’re loaning to a stand-up citizen who has a history of paying back their loans, has a good credit rating, and ultimately has a clean record. This means they also want to know about your home and personal situation. Is your life stable and have you shown consistency when it comes to your financial obligations?
2. Debt Capacity
As with the first point, banks want to know you’re going to pay them back (this is a recurring requirement). They also want to know that there isn’t a long line of other creditors ahead of them when it comes to getting their money back. That’s why banks will want to see who you already owe money too and how much you owe; they need to see if you can you handle taking on more debt. The lender will want to compare your debt load to your income and make sure that you can make payments based on your current business and the one you’re planning to buy.
This is what the bank is going to “hold” to make sure you pay the debt back. Think of it like a mortgage but instead of the bank holding the house as collateral, they’re going to be holding your book (or the book you’re buying).
Cash on the barrel head. Creditors want to feel comfortable about the risk they’re taking on your loan and so they want to make sure you have some actual skin in the game and have the cash to back up your commitment. Collateral reduces the lender’s risk and shows them that you’re serious about the deal.
5. Loan Conditions
These are simply the conditions outlined on how the loan will be used. The lender wants to make sure you’re using the money to actually fund the business and not a luxury world tour. Business loans are less risk than consumer loans for banks for this reason!
6. Shop Around
Never take the first offer! Shop around! Comparing lenders can save you time on the loan term and the interest you pay in the long run. Look for various payment options and payback terms. Look for the best rate and check to see if a fixed or floating rate is the best option for you.
Other growth options are available to you to expand your business. Partnering is always a great stepping stone to learn and grow your existing client base through partnering with a business that has complementary services or products. To see if this is a path to growth, check out our 5 Tips for Finding the Perfect Partner.