Many people aspire to have their own businesses. You only have to look around to seethe number of start-up companies increasing.
If it’s not you, then at least one of your friends wants to try their luck to start their own business venture. Or perhaps you two want to start a partnership?
Whatever it is, you have to prepare yourselves to fulfill the requirements, such as business loans, preparing company’s branding, and putting in the amount of work you need to ensure it becomes successful.
The latter two stepsare completely up to you, but the former should be easy-peasy with the help of these 5 key steps:
Step 1: Research the different types of business loans
Learn about the different types of business loans out there. In the Philippines, there are 3 types: line of credit, equipment loan, and conventional business loan.
- Line of Credit – This is for small business entrepreneurs who need help covering their company’s short-term needs (e.g. inventory purchases and employee payroll).
- Equipment Loan – As the name suggests, you can use this loan to buy equipment for your start-up company.
- Conventional Business Loan – This is for those who want to loan a large amount. To get approval, you need to declare the state of your company, the reason you are getting a loan, and the amount you need.
Step 2: Secure a good credit score
You need a good credit score because financial institutions will look intothis to check if you are eligible to get a business loan.
Review your past financial statements, outstanding loans, and even your payment for your credit cards. In case you haven’t settled some of them, this is the time to do so.
Step 3: Determine the amount you need to loan
Many business owners make the mistake of loaning more than the amount they need. Eventually, this could lead to financial ruin and end your business venture.
To avoid this, be sure to prioritize your needs and identify the specific items and costs that you need the business loan to shoulder.
Step 4: Say no to short-term loans covering long-term investments
If there is one thing you should avoid when it comes to getting a business loan, it’s high interest rates. To put it simply, it is not a viable option, especially if you are looking to finance long-term investments like upgrading an equipment or opening a new branch for your business.
Keep in mind that your interest rate and monthly amortization will be lower if you opt for a longer payment term.
Step 5: Prepare all the necessary documents
Lastly, you have to prepare the necessary documents required by your lender. Here are examples of some of them:
- Valid IDs
- Income tax returns
- Bank statements
- Certificate of employment
- Business permit
Apart from that, you would need to complete the provided application form. Finalize all of these and you will be good to go.
These are the 5 key steps you need to take for you to secure a business loan. Keep all them in mind and your business venture should do great in time. One last thing, if you are doing research about getting a loan, there are myths that you should be wary of. If you have any questions, don’t be afraid to ask your trusted financial advisors.