Loans are a good way of leveraging you business. The general rule of thumb is that if the anticipated returns from your business exceed the interest rate charged on a loan, then it might be a good idea to seek loans however if the interest rate charged on a loan exceeds your anticipated returns from your business then do not at any one time bother your self getting a loan.
The core business of any bank is to offer loans, given the high level of bank competition it should not be difficult to negotiate for a loan especially if you can and you’re willing to offer collateral security.
Banks are regulated and need to meet their statutory requirements, that is why they ask for so much paper work.
For a business loans, you would require your company’s audited financial statements, copies of your business registration and licenses, the security you can provide and a business plan.
The bank will never agree to provide a loan to fund 100% of the total costs, so the business shareholders should cover a minimum of 30-40%
Through cash flow projections, show how long it will take your business to generate enough cash to pay back the loan. A bank would want to make sure that you can generate enough revenue during the agreed term of the loan to pay back the loan.
Be realistic with your assumptions, a banker can always tell when your revenues are too optimistic.
If you are seeking funding to finance capital equipments, machinery or agricultural vehicles, consider leasing instead of a loan. The security requirements are less stringent and financing may be quicker
However some banks decided to give you small business loans to boost your business without any security as long as you’re a prominent customer. All you need is to bank with them for a period of 3 to 5 years as they look into the flow of cash on to your account.
If that does not work for you then it is better to seek loans from micro finance banks because the paper work is limited and they don’t request for securities however they give small scale loans.
When requesting for a loan make sure you critically read the repayment agreement and also analyze the repayment schedule, time and interest rates other wise loans might eat up all your capital which in turn may lead to the failure of the business.
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