Getting a Loan

Getting a Loan

Okay, so you’ve got your business idea, your business plan draft approved and are ready to take on the business world… Just one additional detail: capital investment. Capital funds and a healthy cash flow are essential for any firm to thrive, or to live long and prosper, let alone make a successful debut in most cases.

Thus, venture capital, or simply, cash money to be invested in renting an office, office equipment and supplies, machinerie, licensing fees and fares, and so on, must come from somehwere and family and friends may not always be willing to, or in a position to, lend you the necessary funds.

So, there’s always your best friend – the bank! Getting a loan at the bank may not sound like the best idea, especially if you happen to be liability averse, but it is feasible and may provide the best solutions in credit worthy situations. However, there are several rules to follow in order to appear credit-worthy to your financial instituition (the lender).

While a loan typically given out for the purchase of a house, called a mortgage, is given by banks, a mortgage broker may be helpful in securing the lowest interest rates on a mortgage.

It’s easy to get a loan unless you need it (Norman Ralph Augustine, an US aerospace businessman). Illustration: © Megan Jorgensen (Elena)

Also, banks adapt their lending rates to the bank rate set by the central bank. Moreover, having good credit or a good credit rating or score is very important in applying for any ype of credit, as banks, other financial institutions and even telecommunications companies use this information to determine your solvability.

Likewise, simple things, like dressing smart may influence the human factor in your favour. Indeed, the corporate account manager may be more impressed with you if you’re dressed in business casual fashion, than if you look like you’re merely celebrating your company’s IPO (initial public offering) with several bottles of fine wine.

Similarly, a clear, concise and precise business proposal outlining expenses and expected easrnings per quarter for the first year of commercial operations, should likewise make you look like you seriously know what you’re doing, which is likely to incline the bank to lend you money.

Finally, as with all credit, loans and mortgages, an income statement, as well as, other statements about your sources of income and/or funds, including personal and business tax returns all contribute to construct a clearer picture for the financial managers you wish to impress, enough for them to grant you a personal or commercial loan.

Loans and Credit

From an accounting perspective, a firm`s books record three financial events: assets, liabilities and shareholders’ equity or simply equity. The idea may be summed up as such A= E+L, and constitutes the accounting equation. The present section deals with the liabilities part of the equation. Liabilities comprise debt or obligations that the firm owes to creditors or other lenders, and thus must eventually repay. Which is why both parts of the equation must balance out, in order for a business to stay afloat and avoid being submerged by debt. However, completely avoiding debt when running a business, may not necessarily be the best idea. Indeed, investing in research, development and capital upgrades may greatly pay off in the future and if the only option to do so is obtaining a commercial or business loan, the option should not be overlooked. Similarly corporate credit card represent a convenient way to separate business expenses, and as falling under the debt label, are likewise recorded as liabilities.

As with all credit related enquiries, not crumbling under debt, paying one’s bills on time, and remaining in good standing with credit rating agencies, represent some of the fundamentals to borrowing money. These rules apply to the banking industry and other financial institutions, and whether the amount borrowed concerns a credit card, a credit line, a mortgage, a personal commercial or business loan.

As a general rule, a mortgage is given as a partial loan for the purchase of a house as collateral. However, even though the house (or condo) is considered as collateral, proof of stable income is required to secure the loan. Naturally, the necessary level of income depends on the loan sought, which itself may cover up to 90% of the payment for the property a minimum of at least 10% downpayment usually being required if not suggested. Mortgage calculations abound, and a mortgage adviser at the bank may be helpful in determining your borrowing needs and ability. Along these lines, a mortgage broker may facilitate negotiating the best landing rates across banks and financial institutions when shopping for a mortgage.

Alternatively, a commercial or business loan may be calculated based on projected income. For instance, the purchase of a rental property may be calculated using 75% of the rental income to be generated by the rental units instead of or in addition to the personal income of the purchaser from employment.

A commercial or business loan may also be gotten based on a business plan and proposal, as long as it is serious, feasible, and has at least some collateral or capital investing and funding. As a rule, the more stable and greater one income, and the better one’s credit history, the easier it is to obtain any type of loan…

Let’s get one thing straight: No one wants Stafford loan interest rates to increase. (John Paul Kline, an American politician). Illustration: © Megan Jorgensen.