How to get a business loan to start your new company
If you’re like most entrepreneurs, financing your new business is one of your biggest challenges. How you fund your project will depend on the type of business you are starting as well as on your personal financial situation.
One option you may want to consider is a business loan from a financial institution.
“You can use your loan to buy assets, support cash flow and start building your business,” says Kamran Akbar, Account Manager at BDC’s Entrepreneurship Centre in Scarborough, Ontario. “Instead of using your everyday cash to buy assets, a loan allows you to plan for your payments and conserve your cash to run your business.”
Here are Akbar’s tips on how to get a loan to start your new business.
Create a business plan
When going to a bank to finance your new business, your banker will want to know who you are and what your project is all about. That’s why you’ll need a detailed business plan.
“The business plan is a very important document,” Akbar says. “Following a template when writing the plan will help you think about the things we look at when deciding on a loan.” He recommends new entrepreneurs use BDC’s business plan template.
Akbar says a good business plan will answer questions such as: How will you manage your business? What is your marketing plan? How many employees will you have? What are the business challenges you might come across? And, how will you manage your cash flow?
Conduct your own research
Akbar advises new entrepreneurs to do thorough research before starting a business. Good sources of information include industry reports, people working in your business sector and government statistics.
“You should have an idea of the trends and challenges in the industry,” he says.
Doing your research also shows your banker you are committed and willing to work to achieve your goals.
Be ready to invest
Getting a loan will be a lot easier if you’ve invested your own money in the business. It will reduce the size of the loan you’re asking for and also reassure bankers that you’re risking your own money next to theirs.
“Investing money in your business shows your commitment,” Akbar says.
Loans that are not secured by assets often require a personal guarantee. This means your personal credit score will be a big factor in whether or not you get a loan.
“We look at credit scores as a reflection of the borrower’s ability to manage their personal credit,” Akbar says.
Keep your options
Akbar says as long as a project is well researched and that the financials make sense, a bank will consider funding it.
He also advises entrepreneurs to keep their option open to various other financing options.
“Contact banks, but also look into government grants. Consider private lending as well,” he says. “Start by getting a line of credit, because it will make it easier for you to get a term loan. Explore all the options and see what’s in your best interest before making a decision.”
Young entrepreneurs should check out Futurpreneur Canada, which provides financing, mentoring and resources to aspiring business owners.
For more advice on getting a loan, download a copy of our free guide How to Get a Business Loan: A Guide to Preparing a Winning Loan Request.