To his amazement, after presenting the bank with some receivables, the bank still asked for personal guarantees not considering the fact his business was a corporation, why does he still need personal guarantees?

One of the first things overly-optimistic entrepreneurs discover as they look for funding is that banks don’t fund business plans. Apparently, in their defence, it would be against banking law if they did. Banks are dealing with depositors’ money so they wouldn’t want to invest in a startup they can’t effortlessly get their money from.

Jide always finds it daunting securing a business loan for his striving venture. He was really disappointed when he first set out to get a loan but couldn’t secure more than N 500, 000 that he ended up having to sign a lien on his family home to get the loan.

Banks are going to want a lot before they grant your loan application, so what then is needed to secure a business loan?

Secure a collateral plan

Apparently, not all banks lend money to startups without a guarantee they are getting their money back. One exception to the rule is that the federal Small Business Administration (SBA) has programmes that guarantee some portion of startup costs for new businesses so banks can lend them money with the government, reducing the banks’ risk.

Some loans will require you to put down some form of collateral. If this is the type of loan you choose, you will need to have a good idea of how much your form of collateral is worth. Lenders will want to know this number and you will want to know that you have something of tangible value to secure the loan.

So your business has to have physical assets it can pledge to back up a business loan. Banks look very carefully at these assets to make sure they reduce the risk. The need for collateral also means that most small business owners have to pledge personal assets, usually house equity, to get a business loan. Just make sure that you’re not going to default on the loan and lose whatever property you use.

Draft a business plan

The first thing you will need to do if you want to convince a lender to give you a business loan is to write up a business plan. Lenders will want to know that you are running a credible and profitable business and that you have the knowledge and skills required to grow your business into stardom.

Your business plan has to include absolutely everything that has to do with your business– your goals, competitors, past and projected revenue and expenses, market analysis, and how you intend to grow your company. Show why you are the best person for the job, and when you have completed all of that, write an executive summary that will draw the lender into your vision. This will be the first thing they read, and it could be the last if they are not immediately interested.

Clearly, state the purpose and amount of the loan

When you have completed the financial statements and your business plan, you should have a clear idea of what you want to accomplish with the loan and how much you will need to reach your goals.

If you are able to clearly state your goals on paper and in person, it will be easier to explain exactly what you need to lenders. Identify what pieces of equipment you will need, the marketing strategy you will implement, or whatever else you will buy with this loan, and research the best price for each of these items. Show this research to the lender so they see that you are taking this seriously and you aren’t trying to take the easy route.

Prepare all of your business’s financial details

This includes all current and past loans and debts incurred, all bank accounts, investment accounts, credit card accounts, and of course, supporting information including tax ID numbers, addresses, and complete contact information.

Prepare a balance sheet that lists all your business assets, liabilities and capital, and the latest balance sheet is the most important. Your Profit and Loss statements should normally go back at least three years, but exceptions can be made, occasionally, if you don’t have enough history, but you do have good credit and assets to pledge as collateral. You’ll also have to supply as much profit and loss history as you have, up to three years back.

Complete details on accounts receivable and payable

Accounts receivable is the amount of money your customers currently owe you for things that you have already sold to them. Essentially, it’s a total of all of the invoices that you have given to customers but that have not been paid yet. This includes account-by-account information (for checking their credit), and sales and payment history.

On the other end, account payable includes most of the same information as for Accounts Receivable and, in addition, they’ll want credit references, companies that sell to your business on account that can vouch for your payment behaviour.

All of your personal financial details

This includes social security numbers, net worth, details on assets and liabilities such as your home, vehicles, investment accounts, credit card accounts, auto loans, and mortgages.

For businesses with multiple owners or partnerships, the bank will want financial statements from all of the owners who have significant shares.

Have an insurance plan

Since it’s all about reducing the risks, banks will often ask newer businesses that depend on the key founders to take out insurance against the deaths of one or more of the founders. And the fine print can direct the payout on death to go to the bank first, to pay off the loan.

Research your borrowing options

In order to find the bank or lender that will offer you the best deal, you will have to do a lot of research. Don’t fall for large banks that seem to have great offers before you look into smaller banks and credit unions first. They may give you a better chance of getting approved. You may get turned down, but keep trying. If you continue to adjust your plans and research all of your options, you are sure to find a lender who will give you the loan you need.