If you are thinking of bank finance as a source to part fund your business expansion or business startup, you will need to consider:
- How much capital you will need
- What type of finance you need. It may be short term, medium term or long term.
- Your company’s ability to repay the loans within the required period
- Your personal financial position
- Your personal credit rating
- Terms and Conditions
Raising finance via bank loans are next to impossible to get if you don’t have good security and an equally good track record of business success. These days most of the banks will provide money on a secured basis, because their underwriters are now practicing “Risk Mitigation”. As a general rule of thumb, banks will either look for a personal guarantee (PG) or they will look for some form of security, such as a bricks and mortar. Many entrepreneurs use the equity in their homes to raise finance for their business after being turned down for a bank loan. While this makes more sense than building a business on credit, the financial risks are no less risky. You must pay this money back through increased mortgage payments whether your business succeeds or not. However, this mechanism is a good source of low interest money to get you started in your business and the interest may be tax deductible (check with your accountant to make sure).
All banks vary in terms of what they can offer startup businesses and the like, so it is important to talk to a number of them before making a decision.