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If you know them and prepare you, the chances of getting credit should increase significantly.
If you know them and prepare you, the chances of getting credit should increase significantly.
The assessment of you as an entrepreneur, the person behind the company, is a lot Important parameter when the bank assesses your credit application. That you check yours business and even giving it the impression, is often crucial for the credit decision. And with all right, it will be crucial even for overall success for your company. These tips can help you to decide if your should, or should not, take a business loan
Make sure you can describe the market on which your business is located:
You should also know which key ratios are important, such as how many customers you need to go around.
My view is that you do not need a specially detailed budget, but it is important to keep an eye on the big dragons. Above all, you need to keep an eye on revenue, which is hardest to predict. Having a budget, even if it's rough, is a signal to the bank that you thought about the economy even if they did not read or understands the entire content. You should also have a clear idea of how the customers are will flow to. If your business is running and you already have customers there is one clear plus. Describe to the bank how you did to get customers and you can do the same again X times. Then you get X in revenue per month and so on.
If you have run companies before and it has gone well, that's an advantage to you should take care of. The same applies if you did the same earlier as an employee as you now do on your own. For example, if you have been employed as a plumber and now start your own pipe company. This reduces the risk of failure and it facilitates the credit decision for the bank.
Imagine a jumper training to qualify for the OS. She practices and jumps but measures only their jumps properly once a year. In addition, it takes up to six months before they are notified of the result. How big is the chance to improve technology if they work that way? It is really important to know how to do your accounting in a correct way.
Driving a business is also a sport. If you get better, it's important to measure. Unfortunately, very many business owners only get a correct metric once a year, when the closing date is complete. It usually happens a few months after the end of the fiscal year. Actually, it's not hard to get a sensible report monthly. I am convinced that many good entrepreneurs with good business ideas could avoid bankruptcy by measuring its performance monthly.
A profit and loss account is easy to understand. Revenue is visible at the top, then comes the costs and the bottom of the result. The balance sheet is a little more difficult, many think. Actually, it is also Very simple, you just need to think a bit differently compared to statement. When you apply for credit at the bank, it is very important to understand the big features in its balance sheet. The balance sheet shows all assets, all liabilities and the difference between them, which is called equity. The word balance sheet may be good to know. The is another word for the sum of all assets, or the sum of liabilities plus equity that will be as much. The balance sheet shows the status of assets, liabilities and equity at one given opportunity - a given day. There is an important difference to the income statement as shows how the company has been running for a certain period - between two days. The balance sheet for an individual would typically contain villa, car, summer house, shares and money on the bank on the asset side. On the debt side There may be mortgage loans and other credits. In one company, assets consist of stocks, machinery, real estate and money at the bank. Another important asset for companies like Billing is accounts receivable. The debts often consist of bank loans, check credits and card credits. Companies often borrow money from their suppliers by trade goods and services on invoice. That means you pay 10-30 days after delivery. This debt is also shown in the balance sheet as a supplier's liability.
But what do you have for the benefit of all this when you apply for credit at the bank? The bank will want to help if you want long money to buy assets as shown in the balance sheet. For example, inventories or a machine may be which can increase your sales. Such an expense is not reflected in the income statement with Once, however, an expense will only be charged to the income statement when it is written in less servings (a machine) or when it is sold (inventory).
If, on the other hand, you are going to spend the money on expenses that are not visible in The balance sheet, such as salaries, marketing and so forth, will be harder to borrow at the bank. If you need money for that type of expenses means that the company is at a loss. Banks do not usually borrow venture capital, that is, money to cover losses. The Bank generally considers that Losses should be covered by the owners pushing for money. On the other hand, the bank lends preferably out of working capital, that is, money that goes to assets as needed in the business.If you understand the difference between working capital and venture capital and can Describe your credit needs based on how your balance sheet affects when you get credit, Will the bank's confidence in you as an entrepreneur increase. It is extra important to understand the following four balance sheet items and the relationship between them:
This is called cash flow analysis, or financial analysis, in economics and thankfully not as complicated as it sounds. You simply compare two balance sheets, from two different occasions, with each other. The balance sheet is from a date back in time Your liquidity was okay. The second balance sheet shall be day fresh, or as close as you can get today's date. By compare these two balance sheets with each other, mail for mail, you get the answer why liquidity is worse in today's balance sheet. Only now can you fix the problem, often without going to the bank. If you anyway need funding in a bank, you have acquired a solid foundation like that Make your discussion with the bank easier.
Invest a few hours in understanding how a balance sheet works and how The balance sheet in your company looks like. Also sketch on how the balance sheet will look when you got your credit and bought for example your machine (one balance). It will be well-invested time that you benefit from throughout yours enterprise.
Talk to the bank in the bank's language. The message to the bank should be something like the following:
Have you checked the options to borrow in a bank? Proposed to decrease any asset other than the one you need to invest in, for example Enter your customer bills faster (if you sell against invoice) so that trade receivables decrease, or to borrow more from suppliers (increase supplier debt)? To show the bank that you understand your balance sheet, which of the major items The balance sheet is and how they affect your capital needs, creating a trust. If you can compare some of your key figures with the industry average and show that your key ratios are well in comparison, it is also a big advantage.
Shoe stores usually need a stock that corresponds to 20% of annual sales but ours is only 18%. Therefore, we should increase the stock by about 100 to increase sales. To handle it, we need to borrow...
Describe to the bank how to actively work to reduce other assets and increase Other liabilities (yes, that sounds strange, but then you talk to the bank on the bank language), but you still need to complete with a credit at the bank. When you work with the balance sheet and do that exercise maybe even proves you do not have to borrow money at the bank. Perhaps it is enough to negotiate with the suppliers for longer credit periods product purchases?
All business is more or less based on relationships and trust. Regarding Bank loans are extra important.
Send financial reports to your bank account quarterly. Then surpasses You're expecting and giving a clear signal that you're in control business economy.
The bank's corporate advisor usually likes to go out and visit their customers. This gives the bank increased credit security and builds confidence. Present the business. Take a walking tour. Resonate at the same time as stock and accounts receivable, if it is the correct position.
If you do activities or events with customers or staff, sometimes it may be good to invite the bank too. It does not work in all modes, but if The occasion fits can make wonders for the relationship building.
A very important rule is to extend your credits in good time before the need arises. It's much easier to get credit with the bank if you do not panic and MUST have the money fast. To come to the bank with an acute liquidity crisis in the luggage is no higher.
In order to be able to know in good time if your business will need more credit, Do you need a way to predict liquidity. In addition, the bank comes To like that you are continually working to plan the liquidity, please feel free to visit the bank how you do. It creates trust and gives a sense of less risk to bank.
But how in peace, you'll be able to keep your liquidity plan up to date, is it changing all the time? Here's how to find a good balance there You can keep enough control on a regular basis, without stealing too much time. A good The way is to clump up records so that the plan gets a bit coarser once you arrive started. Then think about how often you need to update it, maybe monthly last.
Grow your trust with the help of information The banks, of course, do all they can to minimize their risks. It is entirely Normally business thinking and should not be taken personally. The banks are observant Different signals that may indicate that the company may be worse and at risk to end up in financial problems.
A typical sign that it's getting worse for a company is that it's getting harder for the bank to get information from the company. It can be used to your advantage by giving the bank more information than they expect. The banks are used to having a credit review once a year with each customer who borrowed money. Then they usually want the latest financial statements as a basis. By to continuously send interim reports to your contact person at the bank, grows You're a destitute who will be useful next time you apply for one raising the credit.
There is no need to drop the bank with information. Quarterly Reports sufficient for the bank's part. Review profit and loss accounts together with a short comment from you.
For your part, I definitely think that you should come up with some type of report operations monthly. It does not have to be settled in the smallest detail, but Sales figures and most costs, you can usually get up-to-date with no problems one to two weeks after each month change.
If you have a routine to update the book at the same time as you Paying your bills in the internet bank, you have made the most of it work. Check with your accounting consultant or auditor any further moment, such as periodization, which needs to be done before you take out performance report.
Settling a business loan at a bank is a business deal and does not differ so much from regular business deals. You should negotiate a loan to your business with the bank. The almost always improving interest rates slightly and also getting rid of some arrangement fees.
In the case of a check credit or operating credit, as a part of the bank Call it, the bank will present two interest rates. Partly presented themselves the borrowing rate on the amount you are utilizing, and a contractual interest rate, or limit rate, calculated on the credit limit. The contract rate varies between 0.5% and 2.0% and are often very negotiable. Make sure you do not pay 2.0% on it.
As in all negotiations, it is good to have options. Contact multiple banks and ask them to come back with suggestions. Banks often make completely different assessments and it is also good to fine-tune its argumentation and description of the company by booking a meeting with several banks.
Contrary to what many believe, the bank does not go out of safety when they judge credit. The security will last in the credit assessment process.
It is not safe at all that it is good for you to be a private customer and business customer in the same bank. Need to learn more about how banks work? Click here!
All banks want full customers and will argue that you will have both your private economy and the company's economy in the same bank. Certainly it can sometimes be beneficial both for the relationship with the bank and yours The opportunity to get good conditions, but there is a backside that is sometimes larger. In the credit test, the bank will make an overall assessment of how much money they totally expose to you and your businesses, as there are a so-called interest community.
This means that when your business searches for credit, banks see your private commitment, for example mortgages, at the same time. It can thus be easier to get Credit to the company in a different bank than in the one you have your mortgages. In that way each of the banks gets less exposure to you and your company. The The same applies if you have several companies.
Contrary to what many believe, the bank does not go out of safety when they judge credit. The security will last in the credit assessment process. First come repayment and trust of the entrepreneur.
But security is still so important. Here are the most common forms of security for corporate credits:
The corporate inscription means that you pledge your company's assets. In case of bankruptcy, the bank will prevail over other creditors. The amount of business listing worth depends on the amount of assets which is in the company. The bank usually makes its calculations on movable property such as inventories, accounts receivable, machinery and equipment. Because these assets can not be sold to their full value in the event of a bankruptcy the bank usually accounts for 40-50% of total inventories plus accounts receivable plus machinery and equipment. Trade receivables are really worth a little more and other movable property a little less. Read more about mortgage companies
Assume that the bank will require a business listing when you lends money to the company. Often you want to combine it with other collateral, for example personal sponsorship. If you can bargain so that's enough Company listing, you should consider it a success. It also happens that companies use an inventory as collateral. Often in combined with any type of installment contract. equipment
Using a certain inventory as security usually means that you simply Does the bank have the inventory and you rent it by the bank, just like leasing of cars and other vehicles.
For passenger cars, which the bank can easily sell at a bankruptcy, it is enough usually with a cash bet, or increased first lease payment as it often happens called. The guaranteed first lease fee usually amounts to 20-30% of the car value.
For other types of machinery and equipment you can count on a higher one cash or additional collateral. The bank can not count on recycling an equal value of, for example, a manufacturing machine if it would be problem. It is often crucial if the supplier of the inventory can exhibit any type of repurchase commitment at a predetermined price (a certain percentage of new price).
Borrowing money by pledging its accounts receivable is relatively common. The collective name for this is factoring.
The banks offer factoring in the form of invoice credit, which means you can borrow 70-90% of the invoice value including VAT. The company has the risk of the customer does not pay. This might be a nice option to a business loan.
If the customer has not paid within for example 60 days, the bank does not want to borrow invoice anymore. Then the loan space shrinks. Internal invoices, for example between companies in the same group can not be borrowed in this manner. Invoice Credit means that a text is printed on your invoice that speaks for the payer that the invoice is transferred to the bank. Some consider This as a disadvantage as it can signal to the customers that you have liquidity problems. In practice, it probably does not play that big role, most Companies have some kind of credit in bank and invoice credit is one in the amount. However, invoice credit can increase the work of administration and accounting quite significantly. It is important to keep track of how much the bank has paid in advance, at the same time as there are a number of fees to be booked, such as invoice fees, monthly fees and interest on the credit.
Mortgaging their accounts receivable is a way to extract a larger one Security space from accounts receivable (70-90%) compared to, for example company listing, where they are valued at 40-50%.
This type of factoring is offered by independent financial companies, not by banks. It works to get you, for example, 96% of the invoice total amount directly and The finance company takes over the entire risk and collection of the invoice.
The financial company will conduct a proper credit survey of each payer (invoice recipient) and also often require delivery approval from the payer before purchasing the invoice.
Invoicing purchases are often a very profitable business for the financial company. About the financial company buying an invoice with 4% discount and the payment period on the invoice is 30 days, the effective annual rate will be 48%.
Real estate is always a good kind of security. An industrial property can normally is loaned to approximately 60% of market value and a private property to about 70%. A common misunderstanding is that you can more or less automatically receive A credit to the bank if you only have the loan space left on its property. That's not right. The ability to pay is the most important for the bank. You must Still show a credible estimate that the business is generating enough cash flow to pay interest and any amortization.
If you have the opportunity to pledge a property when you raise a credit, you have Often excellent opportunities to negotiate a good interest rate.
I believe that entrepreneurs should try to avoid or minimize personal collateral as far as possible. Managing a business should be fun and you should definitely bet your own money in the company, but to leave a personal guarantee for the company's credit may cause the entrepreneur to end up in a very difficult situation about the company goes over.
For loans to start-ups, the bank almost always wants some type of personal sponsorship, but try to limit it to a portion of the credit. Argue that the bank should also take a certain part of the risk, they charge for the interest rate.
Sometimes the banks want a so-called care haven, that is, they consider that it should be a little bit for the business person personally if the company does not fulfill its commitments to the bank. I think the argument is quite low. Entrepreneurs usually work very hard for the company to succeed and has almost always invested their own money in the company. It will even if the company fails and goes bankrupt.
Under certain circumstances, it is fully possible to borrow money from the bank entirely without security, a so-called blank loan. What is required is that the company is running since some time, has good equity and has shown extremely good profitability. The is almost impossible for new businesses to get credit without collateral.
Usually, entrepreneurs think of the bank as the obvious lender, but that There are several options. Most companies borrow some money, for example, from their providers.
These are the most common types of credits and they are delivered by the banks. One check credit, or operating credit as it is also called, has the benefit of you only pays interest for the amount utilized.
Flexibility is the big advantage. In addition to the interest, the bank wants one limit rate (contract rate) of 0.5-2.0% of the amount granted. overdraft facility therefore, is not completely free when you are plus on the bank account. A loan with amortization fits best when it comes to an investment there A large amount will be paid at a certain time. Banks' credit assessment is about the same, regardless of whether you are looking for a check credit or a loan.
Leasing fits well for machinery and equipment, especially if they are clear market. The bank or finance company that is a leasing provider is the owner to the property and will be interested in being able to sell it after end of lease period, or premature if there is a problem with the payment of leasing fee.
Cars used by companies are almost always financed by leasing because a special rule makes the VAT on passenger cars not deductible the company buys the car. For leasing, half the VAT is deductible.
Invoice credit is a good alternative to check credit when the bank participates in a credit, but thinks that corporate listings are not enough for security. Fakturakredit means that you pledge your customer invoices. The bank thus takes care of customer payments on security must be utilized.
Invoice credit implies quite large changes in the company's billing routines. All invoice information must be handed over to the bank and a transfer statement must be added to each invoice to be transferred. The accounting work will also be More complicated because each invoice is paid off; First comes an advance from the bank of 70-90% of the invoice value, then a balance will be paid when the customer has paid the invoice. For some people and companies, it is more benficial to apply for a business loan
Invoice credit is offered primarily by the banks, but also by some independent persons finance.
Some entrepreneurs do not like to signal to their customers that they handing over the invoices to the bank. The danger with it is probably overestimated. today uses many established, well-managed companies invoice credit.
Billing purchases can be a good option if the business owner wants to be paid directly and At the same time, the recovery work and the risk of credit loss will be eliminated. It is often a fairly expensive method of financing their business, because the fee to The financial company is 3-4% of the invoice value. The funding you receive is that the money comes from the customer maybe 30-45 days earlier than if you entered your customer account yourself.
Borrowing money from suppliers is an underestimated option. It's often completely free and does not require much of you as an entrepreneur. Credit from Supplier means that you can buy goods or services and pay on invoice in after payment with a certain payment period, typically 10-30 days. If you trade with goods it is extra important to negotiate a long payment period with the suppliers.
The most important thing when negotiating with a supplier is that you take care of yours Payments to the current vendor free of charge, if you already pay invoice. If you have paid in advance, or by card, you can refer to a time That and argue that it's time to start paying by invoice.
Expect the supplier to take credit information on your company and sometimes even on you personally. It is therefore important in all types of credit discussions that the company has no payment remarks.
In some cases, you may also suggest that the supplier sends products Consignment. This means that the supplier still owns the products, but they are in your warehouse or showcase. Only when you sell one Product will receive the invoice from the supplier. It works well for example when The supplier has a new product and is aspiring to reach the market, or when the supplier has a high gross margin and thus not so much to lose on being offensive with sending out products for sight.
In principle, you can not borrow money to cover losses. Requires equity capital, especially if the losses are greater than the existing ones the capital of the company. If there is someone other than existing owners who will push for ownership, A valuation of the company must be made in order to determine the proportion of the company to which the contributed capital corresponds. The valuation, and thus How much share of the company the new owners will receive will be a negotiation question between existing and new partners. In practice, it's usually a new share issue to the new ones owners. The number of shares is determined by a calculation based on how much capital pushed to, and the valuation of the company.
Before you find that there is a need for money in the company, ask the question You can trim your balance sheet. In particular, the following:
It is not easy to find the right business loan. There are a lot of banks and new loan providers out there. On this site we help you to find a smart small business loan.
An sure, there are a lot of articles about this subject. For example, at Inc.com