What do you have to offer a lender?
You're Family & friends may lend you money because they love you. Even then they may ask for security as will most lending institutions.
Maybe you have collateral to offer, depends on how much and what kind of collateral that can be secured for your start-up business or existing business.
o Real estate. Generally speaking, you can borrow up to 75 percent of its value minus any mortgages.
o Stocks and bonds.
o An automobile that has equity.
o Collectibles, such as art, rare coins, antiques.
o A life-insurance policy that has a cash value.
o Good credit with a particular bank. On the strength of it you might get a personal loan for several thousand dollars.
o Money in a savings account from the bank you are borrowing.
o A co-signor. A person with an outstanding credit rating can cosign your loan, agreeing to be liable if you default.
o Equity in your business. This is what you offer a venture capitalist.
What is the Risk factor for a lender?
When starting your business consider the risk of the loan for a lender. The amount of risk determines whether you are likely to get the loan, and how much interest you will pay for the loan. The interest or cost of the loan depends on risk.
If you're applying for a very high risk loan from a banking lender, the chances are you will be denied the opportunity, if for some reason a lender wanted to take this high risk loan opportunity he would certainly charge you a very high interest rate of return for the money. Keep in mind the banking industry in general is not in the business of taking chances.
On the other hand, if you were offering a real estate property worth 30 percent more than the loan, and property could easily be sold, you reduce the risk to the lender, in turn receiving a much lower interest rate.
All financial institution/individuals will expect a return on their investment in relation to the risk they take. Basically, risk in a financial sense can be divided;
1. Liquidity
a The ease of converting the secured collateral into cash. Example Cash deposit or Bank CD
2. Security
a. Protection required by the lender or investor to ensure that the borrowed money will be returned.
b. Protection required by the lender or investor to ensure that the borrowed money will be returned.
c. May be in the form of a specific lien against a piece real estate or any of a number of items of value pledged to the lender in case of default.
Keep these basic facts about risk in mind as you plan your strategy for obtaining a business loan. I will discuss how to get ELOC's Corporate Credit or Business lines of credit FOR YOUR BUSINESS in a separate article.
Plan now & save yourself cash flow problems in the future.
Have a terrific day & best of luck with your business financing,
Wm Cole Smith
All Rights Reserved... Copyright 2008
Author
Wm Cole Smith
email: cole@eloc.com
http://www.eloc.com
http://www.wmcolesmith.com
Service Provider - Located in Irvine CA.
Entrepreneur - business owner over the last 19 years, formerly Dun & Bradstreet Senior Analyst.... Aged Corporations & Corporate Credit Lender - Broker. Financing, funding, ELOC's are a necessity to the survival of a business.
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