Novice entrepreneurs who want to start their own business must face many challenges. One of them is financing the activity. Getting a loan for a company that has just been created is in practice often difficult to implement. This is due to the fact that new enterprises are burdened with a high risk of bankruptcy and difficulties in assessing creditworthiness. Expander advises you how to prepare to receive a loan for your business.
Banks are cautious about financing new businesses, and often require operations for at least half a year, a year, or even two years. Despite such restrictions, there are banks that grant loans to start. It can even be seen that the loan offer for new companies is slowly but steadily expanding. An entrepreneur is a risky but very profitable customer.
What will they do to get a start loan?
When applying for a start loan, you must first have a positive credit history. Banks check whether the existing loans were repaid by the borrower on time and whether there are currently any liabilities. Appropriate certificates should therefore be provided
not being in arrears with payments. The Bank may also request a business plan and preliminary estimates regarding the profitability of the project.
It is important when choosing a loan to determine for what purpose we want financing. Companies usually apply for investment, revolving or mortgage loans. If the entrepreneur is just starting his business, it is relatively easiest to obtain the first two types of credit.
The investment loan helps entrepreneurs buy new equipment, modernize the company or build new facilities. It is a long-term loan granted for a period of one to 20 years. The collateral for such a loan may include, among others, transfer of ownership, blank promissory note or mortgage entry in the land and mortgage register. Often, banks leave in their contracts a record of the possibility of checking whether funds have been used for the purpose which the enterprise provides when arranging credit formalities.
A better working capital or mortgage loan to start with?
To finance day-to-day needs, an entrepreneur can get a working capital loan. With his help you can pay, among others purchase of goods, materials, current liabilities to suppliers. Such a loan is usually granted for 12 months. Mortgage is another type of loan for new businesses. Thanks to it, you can apply for a higher loan amount – up to several hundred thousand. The condition for receiving it is collateral in the form of real estate.
In this case, banks offer two options for a mortgage. A company loan can be taken for the construction or purchase of real estate to carry out business activities. Another solution is a private loan, which will finance activities related to running a business. The property does not have to belong to the entrepreneur. It can be a place owned by parents, grandparents or siblings. This solution also allows you to achieve tax benefits, because it allows you to include private loan interest in your business expenses.
The novice entrepreneur can also finance the activity through other financial instruments. These include, for example, cash loans, open credit lines and overdraft facilities. When choosing the right one, you should always take into account ensuring the company’s financial liquidity and its profile.