HOW AND WHERE TO GET LOANS FOR A SMALL SCALE BUSINESS

HOW AND WHERE TO GET LOANS FOR A SMALL                                           SCALE BUSINESS

Nowadays, securing project financing {loan} for a business involves the use of little known, unusual and carefully planned method and technique to raise, borrow or obtain funds.

Funding, whether organic and inorganic, is the single most important factor required for the continued growth and development of a business and at one stage or the other, an investor would be faced with the challenge of securing loan for his/her business.

It is important first that we define the concept of loan. Loan is the fund that an organization such as bank lends to a business for a business start-up or expansion.

To apply for a loan means you are using Other People’s Money {OPM} and to be successful with this method, the basic principle is that you operate on the highest ethical standard of integrity, trust, loyalty and consent. A dishonest man is not entitled to credit.

Banks are in business to loan money and the more money they loan to honest borrowers, the more profit they make. The best time to obtain a loan is when there is no much pressure for the need of the funds.

Some of the sources for loan include

1.         Commercial banks
2.         Credit Unions
3.         Co-operative society
4.         Mortgage banks
5.         Insurance companies
6.         Pension funds
7.         Venture capitalist
8.         Private lenders
9.         Government grants

Below are the different types of loans available

1.         Signature loan
2.         Consigners loan
3.         Loan of collateral security
4.         Co-operative loan

Signature Loan: This is a loan you get based on signing a promissory note to repay the lender as at when due. You do not need to give collateral to get a signature loan.

Cosigner Loan: You can also use a cosigner to secure a loan. A cosigner is a living collateral with the lender.  It is usually an agreement between the lender and the consignee to provide collateral for the purpose of securing a loan. To get a cosigner, the lender needs to convince the cosigner that you are a good credit risk and the cosigner may demand a certain percent of the profit.

Loan of Collateral Security: A collateral loan is one in which the borrower puts down an asset that would stand as the security for the loan he/she is applying for. The types of collateral loan available includes

1.         Paper Collateral [ which includes stocks, bonds, certificate of deposits, any contract with guarantee of payment and promissory notes]
2.         Fixed deposits in banks
3.         A fixed asset such as real estate and machinery
4.         Rented Collateral
5.         Personal property like boat, cars, airplanes, jewels etc.

Co-operative Loan: As the name implies, this is a loan gotten from co-operative society. You need to be a member before you can access loan facilities from co-operative bodies and they are usually given without collateral.

If you desire to raise money by borrowing, you must know how to prepare a winning package to borrow from any lender. If you want to borrow your way to riches, you must study the technique of successful borrowing of fund for investment. You must know how to prepare a winning package.

A package is simply a collection of documents providing important details about a proposal loan. The content of the package depends on whether the borrower is seeking for funds for expansion of an existing business or for start-up.

If the borrower is borrowing to expand an already existing business, below would be the content of the package

1.         A loan application letter stating how much you and the purpose of seeking for the fund
2.         A profit and loss statement account of the business for the past three {3} years
3.         An appraisal of your business / property
4.         Description of the assets of the company
5.         Insurance on the assets/ property if any
6.         Deed, title and mortgage information if any

If however the borrower is seeking for funds in order to establish a new business, a sound business plan would be needed and below are some of the contents of a sound business plan

1.         Executive summary
2.         Market analysis of the project
3.         Financial analysis of the project
4.         SWOT analysis of the project
5.         Risk and mitigation strategies of the project
6.         Socio- economic analysis of the project

Loan packages must be well prepared, detailed and not cumbersome to understand. A winning package does not need to be bulky. It should not be more than ten {10} pages in your first loan request to the lender. Short packages are usually a winning package.