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Brian's
Introduction
By
Brian Walsh (Founder & CEO of
Entrepreneur.co.za)
I have spoken a bit about loaning money for your
business in Financing your Business under
the Start-up section. I want to reiterate
that loaning money should never be a first
choice for capital requirements. However, there
are many good reasons to loan money for your
business.
It is quite acceptable to loan money to buy a
turnkey operation (normally in the form of a
successful franchise). It is also acceptable to
loan money to buy stock of product that you
intend selling for a profit (commonly referred
to as merchant capital). It is however, not wise
to loan money to pay salaries, or develop a
product without having an existing, immediately
accessible market ready to buy such a product.
Most businesses are shut down by organisations
that money is loaned from. The problem is that
in most cases, you become liable for the
outstanding amount, and if you can’t arrange to
pay this to the satisfaction of the lending
institution, you often sacrifice your personal
assets and/or credibility. This can be crippling
for your future as an entrepreneur. So, be very
careful when loaning money, and try to follow
these basic logical rules:
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Minimise your debt and personal financial
requirements.
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Always ensure you have a large, healthy
window of time to ensure you can pay back
your loan.
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Ensure that you are more than confident on the
returns you show the lender in order to acquire
the loan.
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Do your homework and source your loan from the
best relevant lender.
When considering loaning money, also remember
these three points:
Collateral
– most institutions will want some form of
collateral or security. No matter what the
circumstances, they will still want to protect
themselves. If you don’t have collateral, then
don’t waste your time approaching traditional
financial institutions like commercial banks.
Rather look for specialist institutions,
alternatives like friends and family, or venture
capitalists.
Credit Record
– most financial institutions will expect you to
have a healthy credit record (and by the way,
having no credit record is almost as bad as
having a bad credit record). Make sure you have
a healthy and clean credit record. You can save
yourself some time by looking up your credit
record yourself.
Process
– you will never get a loan immediately unless
you have a good track record with the bank, and
pre-qualify for credit. There are often lengthy
delays, and the institution may come back to you
a number of times requesting various details.
So, make sure you have more than enough time to
secure your loan, and that you find out exactly
what is required, and provide it in full.
The main types of lenders are::
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