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Why Do Banks Need a Business Plan?

If you have been running a business successfully for quite some time now and you want to apply for a loan to fund your expansions, you’re most like to get a loan without hiccups. But if you have a start up venture, then getting a loan sanctioned will not be easy. Private lending institutions will willingly lend you a loan but charge steep rates of interest.

Banks are the most likely source where most start ups and small business firms apply for loans. Banks will ask for a business plan in the first place. You can talk to a business plan service for with preparing a sound business plan.

Your financial plans should be practical and realistic

Apart from preparing a good business plan, you’ll need to have financial goals that are realistic and you think you can achieve eventually. Banks are particularly averse to lending loans to small firms and start ups. This is so because the depositors don’t want banks to invest their money in risky business ventures that do not guarantee assured returns.

So, banks would ask for collaterals that the bank will hold as mortgage. They would sell these off to realise their dues in case you’re not able to payback the loan amount. Collaterals would be your personal assets like home, and savings. But having a sound business plan with achievable financial objectives will make your task of seeking a bank loan smoother.

Think from the lender’s perspective

Put yourself in the shoes of the lender. Your prospective lender, a bank in this case, will want to doubly reassure itself that you’ll be able to payback the entire loan complete with the interests in the stipulated time period.

They will want to know your business plans. How do you intend to get the best returns on your investments? Is your product or service saleable? Will you be earning enough to reimburse the loaned amount? What personal assets can you provide as collaterals? Do you have guarantors to back you?

Banks prefer lending to someone who has the requisite and extensive experience in the business. You’ll need to back up your claims with relevant documents. You chances of getting a loan will go up if you can provide documentary proof of an extra income source like your spouse’s salary. You can get in touch with business plan services if you need tips on how to draw up a good business plan.

You will need to fulfil official obligations

If you’re seeking an SBA (small business administration) loan, you’ll need to provide for 30% of the amount, apart from an effective business project. Banks will provide the rest 70% of the loan amount, in case your loan gets sanctioned.

Inspite of having a superlative business, banks might ask you to fill out a loan application form. You might be asked to submit documents like tax returns, audit statements, and balance sheets of your organization for the last five years that reflect the financial health.

You’ll need to have a no holes barred plan

You can make out whether a bank is interested in giving you a loan by the interest it takes in reading your plan. Business plan services help you to organize a business project complete with all the features.

10 Small-Business Start-Up Mistakes To Avoid

Introduction

What are some of the common mistakes entrepreneurs make when starting out? Here is a list of ten of the most common mistakes new entrepreneurs make when starting their business. Although mistakes made can be our greatest teacher, they can be time-consuming and costly. So here I want to share with you my hard-earned experiences and the insight I gained from my own lapses in business judgment.

1. Starting Without A Business Plan

If you are serious about making your new business a success, you must have a written plan. It can be as simple as one page to get started. Writing it will force yourself to think about how you plan on making your business come to life and also become profitable. Force yourself to honestly answer such questions as “Who will my customers be”; “Why will they buy from me?”; “How much will I charge for my products and services?”; “How will I get the word out about my new business?”. Be realistic about the costs of running your business. Your business plan will act as an ever-changing and ever-improving guide for you to follow.

2. Having No Management Experience

As the founder of a small business, you will be directly responsible for all aspects of management – finance, marketing, sales, employee relations, dealing with sub-contractors, and bathroom cleaning, etc. But if you are starting your business because you are great at your particular skill or service, and want to devote all of your time and energy to doing this, maybe a family member or partner can handle most of the management of the company. This person must share your vision and goals for the business.

3. Hiring Help Too Soon

Do not hire employees until it is absolutely necessary. The expense of hiring help can financially drown your small business very quickly. When you do hire someone, make sure that they are hard-working and honest. Only hire people you really need, that will have a positive impact on your business. At our home-based small-business, we try to use sub-contractors as much as possible.

4. Not Hiring Professional Help

Do not skimp on hiring professional advisers like an accountant and attorney. Interview several and find advisers that you are comfortable talking with. Do they understand what you are trying to accomplish? Are they quick to share their experiences and knowledge with you? These professionals can save you many headaches and lots of money.

5. Not Using the Cash-Method Of Accounting

Under the “cash method”, you record business income when it’s received into your bank account. And you record an expense when it is paid out of your bank account. Most of us use this cash method for our personal finances because it is much simpler and less time-consuming. This is also the ideal method for the small and home-based business. Under the “accrual method”, you would record business income when it is earned, without regard to when you may get paid for the product or service you sold. And you record an expense when it is incurred, without regard to when you will get around to writing a check to pay for it. This accrual method is too difficult to keep up with for a small and home-based business.

6. Not Keeping Track Of Your Money

You must track your income and expenses every month so that you know where your money is going. You can do this yourself with inexpensive accounting software, or simply download your monthly statement from your bank and credit card. Cash-flow is the life-blood of a small fledgling business.

7. Not Doing Enough Market Research

This is a very common problem with start-up businesses. Market research can take many months and lots of research to do correctly. You must know who your competition is, and who your customers will be. You must understand all aspects of your industry – inside and out. Read all the books and articles you can find about your particular type of business. Talk to others that are in that industry.

8. Not Doing The Correct Marketing

Every business must have an online presence. It does not matter what business you are in, you must be online. It is now possible to do extensive and sophisticated marketing for no cost – free. Whether is it a simple website, Facebook, LinkedIn, Tumblr, or an online telephone-book listing, you must be online.

9. Spending Too Much Too Soon

If you are on a tight budget, do not start out by spending thousands on business cards and letterheads. Do not spend thousands on paying a company to build your website when you can very quickly build a great website on your own. Keep using that older computer until you have the cash-flow and the actual need for a new computer. Before very big purchases, like a new truck or machine, get advice from your accountant.

10. Giving-Up Too Soon

A major part of being an entrepreneur is having stamina, drive, and determination. Not giving up your dream because of a few bumps in the road is an essential part of entrepreneurship. Developing the intestinal fortitude to weather the tough times is essential if you ever want to achieve any kind of success. Don’t believe anyone that tells you that starting and managing a business is easy or simple. It also takes time, effort, faith, and a vision.

Conclusion

Please feel free to completely ignore this advice, or listen to it and keep in the back of your mind while you are starting your new business. But just don’t let the fear of making mistakes, costly or not, to deter you from starting your new business. Making mistakes, and understanding why you made them, and learning how to fix them or avoid them in the future, truly will be your greatest teacher.