Ravi Chandran
Raising capital is important – because in addition to drive, ambition and a great deal of planning, starting and expanding a small business generally requires capital. Capital may come from family, friends, lenders or others.
One key to successful business start-up and expansion is your ability to obtain and secure appropriate financing. Raising capital is one of the most basic of all business activities. But as many new entrepreneurs quickly discover, raising capital may not be easy; in fact, it can be a complex and frustrating process.
However, if you are informed and have planned effectively, raising capital for your business will not be a painful experience.
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There are several sources to consider when raising capital. It is important to explore all of your options before making a decision. These include:
- Personal Savings. The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans.
- Friends and Relatives. Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started.
- Banks and Other Financial Institutions. The most common source of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.
- Venture Capital Firms, Accelarators and Angel Investors. These firms help expanding companies grow in exchange for equity or partial ownership.
It is often said that small business people have a difficult time raising capital, but this is not necessarily true. Banks make money by lending money; however, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests.
Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: “High Risk!” To be successful in obtaining a loan, you must be prepared and organised. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk.
When raising capital, remember that terms of loans may vary from lender to lender, but there are two basic types of loans: short-term and long-term.
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A short-term loan generally has a maturity date of one year. These include working-capital loans, accounts-receivable loans and lines of credit.
Long-term loans generally mature between one and seven years. Real estate and equipment loans are also considered long-term loans, but may have a maturity date of up to 25 years. Long-term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.
When reviewing a loan request, the bank official is primarily concerned about repayment. To help determine this ability, many loan officers will order a copy of your business credit report from a credit-reporting agency. Therefore, you should work with these agencies to help them present an accurate picture of your business. Using the credit report and the information you have provided, the lending officer will consider the following issues:
- Have you invested savings or personal equity in your business totaling at least 25% to 50% of the loan you are requesting? (Remember, a lender or investor will not finance 100% of your business.)
- Do you have a sound record of credit-worthiness as indicated by your credit report, work history and letters of recommendation? This is very important.
- Do you have sufficient experience and training to operate a successful business?
- Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business?
- Does the business have sufficient cash flow to make the monthly payments on the amount of the loan request?
Your banker may want to talk to your suppliers, customers, potential partners or your team of professionals, among others. When a loan officer asks for permission to contact references, promptly answer with names and numbers; don’t leave him or her waiting for a week.
Walking into a bank and talking to a loan officer will always be something of a stressful situation. You’re exposing yourself to the possibility of rejection, scrutiny, and perhaps even criticism of your business. Preparation for, and thorough understanding of this evaluation process, is essential to minimise the stressful variables and optimise your potential to qualify for the funding you seek.
Keep in mind that many times a company fails to qualify for a loan not because of a real flaw, but because of a perceived flaw that was improperly addressed or misrepresented. Finally, don’t be shy about reaching out to professionals like mortgage brokers; their experience and invaluable advice will be able to best prepare you for working with your bank.
How to Secure Personal Loans Quickly
If you have limited capital and are searching for personal loans to expand your business, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
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If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.
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