Borrowing Money

…is the most common source of cash for investments. The banker or lender will want to know if you will be capable of repaying. There are two main sources of cash to pay the installments: Cash flow and an additional source, such as a property or valuable to act as collateral. Banks are more confident if the business has been in existence for a number of years with a sound economy.

However, if you are starting up, you will need to prepare a well designed plan, so that you can show how your business will operate and how it will obtain the cash to repay the loan.

Good credit is essential. Ask for your credit report well in advance and repair it if there is anything to be corrected. It can take up to one month to get the credit bureaus to amend any mistake.

Equity

You must have some equity in your business, for a lender to consider your loan request. Equity can be acquired by retained earnings or the injection of cash by the owner or investors. The usual requirement is that the total debt your business has, does not exceed four times the equity. If you are starting, you will need to provide between 20 and 40 percent of the cash requested.

Collateral

Another source of obtaining cash for repayment is collateral. This means any personal or business asset that can be sold to be able to repay the loan. As in mortgage loans, collateral is a property that can be repossessed in order to compensate for the missing payments.

As you can see, when you are requesting a personal loan with a job to back it up, most times collateral is not necessary. In the case of your business, you are admitting that your business is only starting up so, unlike your employer, your business is not yet a safe one and you will be asked to provide collateral. When a property can not be provided, collateral is replaced by a co-signer.

The Value Of Collateral

This is important to consider, since they don’t take the market value into account. The value taken as valid is somewhat less, to compensate for a price reduction to perform a fast sale. They usually expect the collateral to be sold within 90 to 120 days.

But Not All Is A Problem

There are aspects to consider which are something much more moving to your business than physical assets: Mainly, your attitude. The attitude of a winner makes all the difference in the world, whereas if you go to your potential lender with a weary aspect or insecure attitude, you will get exactly that from your prospective lender: Insecurity. Make your lender feel and actually know that he will make good business with you.