Bank Loans - A source of Fund
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  • 1. Sources Of Funding: Bank Loan: Finding and Keeping a Bank: 1. Understand the basics. Large or small, banks are interested in the same fundamentals—such as cash flow, collateral and the viability of your business. 2. Sell the bank on your company. Provide solid information on its financial history, your business plan, and information about the kinds of loans you need and the terms you want. 3. Look for a good fit. Let prospects know what kind of a relationship you want with a bank. 4. Ask the right questions. Find out where decision making takes place, how many people you will have to deal with, and if the bank is open to meeting with you and your advisors fairly regularly. Commit time and energy to developing your relationship with the bank you choose. Get to know more than one person at the institution so that if your bank is merged or acquired, someone familiar with your business will probably still be there. Approaching Your Bank 1. Understand that your primary responsibility is the proper use of capital and that you are in business to make a profit. 2. Test the economics of your product or service. Make sure that it is profitable and that the gross profit percent is in line with that of the industry. 3. Know how you will finance your business. Visit lenders (banks) prior to seeking financing to gather information. Ask your lenders what they will want to see before you apply for a loan. 4. Develop a personal financial evaluation. Determine your net worth and your annual, personal cash flow needs. Develop realistic financial forecasts for income statements, cash flow and balance sheets for three years. Forecast monthly for the first year. Writing a Business Plan For a Loan: 1. Begin with a statement of purpose. You should be able to explain your business in 25 words or less. 2. Tell how your business will work and why it will be successful. List the owners. 3. Fill in the business details. Describe its products or services, the customers, the market and the competition. List the managers and their credentials.
  • 2. 4. Supply three years of projected financial statements. Include income, loss, and cash-flow projections. Provide supporting documents, such as references from creditors and potential clients and suppliers, evidence of insurance and the like On State and Local Funding: 1. Don’t overlook city, county or state governments when you seek capital. Many economic development offices have funding-assistance programs for qualified small firms. 2. Understand the purpose and the requirements of the program you’re interested in. It may call for raising matching funds or creating jobs. 3. Be modest in making projections. For example, don’t inflate the number of jobs you think you can generate in hopes of getting a larger grant. 4. Take advantage of “in-kind” credits. Like cash, these can be used as matching funds. In one case, a state program counted a company’s $200,000 local property tax abatement as part of the matching requirement. Remember that having a good business plan and strong management team in place will help you make your case. Banks give out loans to start-up and emerging small businesses : Type Of Loans: Working Capital Lines of Credit For the ongoing working capital or other cash needs of a business, a line of credit sets a maximum amount of funds available from the bank to be used when needed. These lines are offered for renewable periods which begin from 3 months and extend up to several years, although the lender reviews these extended periods annually. The maximum amounts vary greatly; interest rates usually float and you pay interest only on the outstanding balance. Money is typically used for daily operations, such as inventory purchases and to cover periodic or cyclic business fluctuations. Collateral for the business loans is often accounts receivable or inventory. From a lender’s perspective, the adequacy of the borrower’s cash flow is the most critical consideration. A commitment fee may be assessed by the bank for making a line of credit available to the borrower, even if the full amount is never used. An established business with a sound credit history may be able to obtain an unsecured revolving line of credit. Creditcards Although creditcards are not finance device exclusive to commercial banks, they are often a part of a bank’s lending portfolio. A revolving Credit Charge Card can be used by
  • 3. a business as an alternative to a working line of credit. The competitive banking environment has forced many institutions to seek new sources of income and develop new financial products that meet changing demands, that’s how Small Business creditcard came into existence. Revolving creditcards offer a hassle-free, quick source for limited funds and working capital. However they are a little costly to maintain. These cards typically offer a slightly higher interest rate than the individual consumer cards and have lending limits just over $15,000. Short Term Commercial Loans These Loans are similar to Working Capital Line of Credit since they are used to finance the same type of operating costs as working capital line of credit. But they differ from the Line of Credit in that a commercial loan is usually taken out for a specific expenditure like purchasing a specific equipment etc. and a fixed amount of money is borrowed for a set time with interest paid on the lump sum. For almost all start-up businesses and most existing Business Loans, a short-term commercial loan from a bank will have to be secured by adequate collateral. Cash flow and a regular sales history are of key importance to the lender. A fixed interest rate may be available because the duration of the loan and there for risk of rising rates is limited. While some short term loans have terms as brief as 3 – 6 months, the loans may extend 1-3 years for certain purposes. These loans may be secured by accounts receivable or inventory as well as fixed assets. Business loans rates are calculated by the business loans calculators Long Term Commercial Loans Long Term Commercial Loans with loan terms extending from 1-3 years are usually more difficult to obtain for smaller businesses because the longer the term of Business Loans , the greater the risk of the lender. With small businesses, a lender may not be willing to assume the risk that the business will be solvent for about 10 yrs. Consequently, banks will require collateral and limit the term of these loans to about 5-7 years. The objectives for longer commercial loans vary greatly, from purchases of major equipment and plant facilities to business expansion or acquisition costs. These Business Loans are usually secured by the asset being acquired and financial loan convenants are regularly required. Business loans for bad credit helps you to repay your bad credit Equipment Leasing For a bank, the leasing business cantake the form of either a loan that the borrower uses to lease equipment from an independent source or a direct lease from a bank subsidary company that owns the equipment. The duration of the businessloan is tied to the lease
  • 4. term. Assets commonly leased by small businesses include equipment, vehicles, real estate or facilities. Most banks require a solid operating history before engaging in leasing agreements with small business. Letter of Credit Letters of Credit are not the most common means of small business financing, but they are an important financing tool for companies that engage in International trade. A letter of Credit (LC) is simply a guarantee of payment upon proof that contract terms between a buyer and seller have been completed. LCs are just fancy, two-way IOUs often used to facilitate international credit purchases. http://www.techno-preneur.net/new-timeis/funding-options/funding-index.htm This section provides broad description about different funding facilities provided from different banks with a list of Nationalise and Private Banks in India. For the specific requirement details, the links to different banks are also provided..