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Many times entrepreneurs find themselves with terrific business ideas that they believe can make them a great deal of money, but they run into a problem when it comes time to getting the business off the ground. In most cases, a viable business needs to have start-up and working capital in the form of business loans, but when a company is brand new, there is a complete lack of business financial information that can be used to secure funding.
Banks and other types of lending institutions rely on receiving a variety of fiscal information from small business borrowers in order to make a decision about loaning money to them. If you are just starting out and your business is brand new, then you will not have cash flows or dividends information, or financial statements for your business that you can supply to the lenders. Without that detailed history of business operations and financial reports it is difficult to secure a loan.
Because of this situation, the banker or loan officer handling your small business loan will have to rely on your personal financial information. This means they will be primarily evaluating you, your business plan, and their estimation of whether or not you have the potential to become a successful business owner.
When it comes to new businesses, the lenders are very much aware that a very large percentage of new businesses fail in the first two years of operation. This fact, combined with the lack of a business track record, fiscal information and financial statements that lenders prefer to rely on are what makes the lenders so wary about approving loans for brand new businesses.
In addition to the failure rate during the first two years, the monetary information of most of the businesses that do survive that initial period rarely make a profit and are even considered lucky to break even. For this reason, it is strongly recommended that the person starting a new business venture has enough current assets set aside to cover their living expenses during at least the two years start up phase.
The good news is that in this day and age, with the many advantages that a small business owner can enjoy thanks to the internet and technology solution tools, they are often able to reduce overhead, and as a result, there are more and more companies that are able to become profitable more quickly. In these cases, when an entrepreneur is able to use their personal fiscal information to secure a loan for start up costs, then much of the success of the business will come down to wise and effective working capital management.
When applying for a small business startup loan, you should do as much as possible to make sure that your personal financial information is in as good a shape as possible before turning in an application. It is a good idea to get a copy of your credit report and make sure you know your credit score. Also, having a complete list of your personal financial statements and current assets, along with a detailed business plan, will help the lenders look favorably on your loan application.
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