There are some essential sources of financing for SMEs that you cannot miss. Of all of them, one of the most common forms of financing among entrepreneurs is resources from family or friends.
Although they are limited resources, they can be a great alternative to obtain immediate money.
Some financial institutions provide loans to those who have difficulties in accessing loans in traditional banks.
Many young people consider them ideal for getting enough money to start a venture. In addition, crowdfunding platforms are becoming an interesting option to finance new projects.
You just need to present the business idea and indicate the amount required. In return, an investor can access a portion of the business share.
Finally, Business angels are private investors interested in placing their money in interesting projects that have growth potential.
It is important and sensible to proceed carefully when planning for a loan and to choose the financing partner. You can also visit online small business loans to get quick access to funding.
Steps to getting a small business loan:
If you observe the following instructions and follow them carefully, you have a good chance of getting a small business loan of your choice.
1. Check the need
Millions of people take out a loan every year. The vast majority of loans (over 90 per cent) are properly repaid.
In any case, you should check carefully whether you want to get a loan, or it is better to avoid it. So, the loan for buying a new car may be sensible; you can use a car to reach work.
Instead of financing a vacation or a new stereo system, it is good to save in advance to fulfill your wish.
2. Check your requirements
To get a loan from a reputable provider, you need to have:
- Have a place of residence in Australia
- Be of legal age and
- Receive a regular income.
Besides, your credit rating and possible collateral play an important role in lending.
3. Calculate the exact financing requirement
Carefully check how expensive your project is and how much available savings you can use. The basic rule here is “more is less”. Do not count your credit needs down nicely. Otherwise, you will need expensive refinancing in the end.
4. Friends, family, and partners
This is the first source of money. All business starts with own money, from our partners, family, or friends.
It is the most common loan of all and the ideal when you want to start with the pilot of your project. Consult with your closest contacts and ask for support. Do not commit debt with third parties whenever possible.
5. Get a first overview of the market
Find out what the current market interest rates are for loans. Short online research is usually sufficient for this.
You need this information to look at the points realistically. Online comparison portals can also help.
If you want to receive objectively comparable offers, you have to set clear requirements for potential lenders from the outset.
Your inquiries should contain identical data regarding equity, loan amount, repayment amount, fixed interest period, and special repayment options.
6. Determine your monthly resilience
You have to repay Loans, avoid delay in repayments and dues in the future, and pay it on time.
So, check carefully what your monthly disposable income is and what rate you can actually afford. You should always plan a safety reserve.
Depending on the family situation, you should also invest two to four net monthly salaries as a liquidity reserve in a call money account.
In this way, you can access at any time if your income fluctuates. Also, you should ensure that the monthly rate is not too high.
7. Decide on a reasonable term
The loan amount, monthly instalment, and repayment period must match. The longer the term of a loan, the lower the monthly instalments, but the more interest accrues. Think carefully about when you want to repay your loan.
In general, you should no longer have any debts at the latest when you retire.
8. Are special repayments possible?
Special repayments are a good way to repay a loan more quickly and thus to be debt-free more quickly.
You also save interest with special repayments. In principle, you should repay at least five percent of the additional loan or loan amount annually.
9. The best-fixed interest period
The fixed interest period is the time during which the interest rate for a loan is fixed at a constant level.
Especially in times of low-interest rates, it is advisable to fix the interest rate as long as possible. Moreover, in the current low-interest-rate phase, very long fixed-interest periods of 15 or 20 years make sense.
If interest rates are lower than today, after ten or more years, you can even reschedule without additional costs.
The law has stipulated that you can withdraw from a fixed-interest loan after ten years without the bank having to charge a prepayment penalty.
10. Choose the appropriate loan form
Mortgage loans have comparatively low-interest rates, but flexibility in repayment is limited. Besides, there are additional costs for the registration of land charges.
Instalment loans are usually more expensive, but this does not require credit security. Moreover, you can make special repayments without additional costs or at low fees.
First, check whether the offers meet your specifications. Then compare the effective interest rate and choose the bank that can offer you the loan of your choice at the cheapest rate.
In the case of follow-up financing, it may make sense to extend the existing bank to save additional fees for the switch.
If the offer of your previous bank is too bad, you should always renegotiate before you choose another institution.
Successful loan factors
There are some factors that increase the chances of a successful loan to a small business:
- Age from 30 to 45 years
- Permanent registration at the place of residence
- Property ownership
- Lack of criminal record
- Registered marriage
Who makes the decision
The main task of the bank before approving a loan is to assess the risks and reliability of a particular entrepreneur. To avoid further problems with debts, banks use two main methods:
- Expert review: Inspectors of a financial institution makes a decision
- Automated scoring system: The operator enters the client’s data into the program, fills out the questionnaire; all further analysis takes place without human intervention.
What documents must be provided:
Regardless of the bank and the tariff, you will need a passport and military ID to get a loan. If a young man is expected to serve in the army, the bank will most likely refuse to provide a loan.
Besides, the bank may request:
- Income statement (2-PIT)
- TIN
- Extract from the USRIP (for LLC from the register)
- Business plan
- Documents on the right of ownership of property left as collateral
- Letter of the guarantor
- For the franchisee: agreement with the franchisor
- For persons with temporary registration: its confirmation
If any agreements with suppliers, business premises lease agreements, licenses.
Conclusion
Low-interest loans from the banks are available to finance certain construction measures.
These measures include energy renovations and the age-appropriate renovation of your house. Such support programs also exist at the level of the federal states.
For instance, for young families with a certain fixed maximum income. Check whether you are eligible and include such funding in your financing, if possible.