Business Investment Loan

By: EconomyWatch Content   Date: 23 December 2009

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A business investment loan is an excellent source of finance for small businesses and startups. This may not be capable of generating funds through a share or debenture issue. A business investment loan covers multiple business expenditure, from purchasing land and equipment to maintaining working capital. Additionally, an investment loan intended for startups can be utilized for routine expenses, such as paying wages and taxes.

Obtaining a Business Investment Loan: Considerations

 

Most lenders are hesitant to extend a loan to startups due to the high risk of failure associated with them. Even specialized startup investment loan providers maintain strict qualification terms for business investment loans. To facilitate easy loan approval, a borrower must consider the following strategies:

 

Develop a Business Plan

Presenting a comprehensive business plan increases the lender’s confidence as it illustrates the borrower’s seriousness about the business. It also highlights the borrower’s current financial capacity.

 

Typically, a business plan outlines the following information:

  • Executive summary of the business

  • Owner and employee overview

  • Market analysis of the business

  • Marketing strategies

  • Funding needs and projections for 3-5 years

 

A well written business plan not only improves the chances to qualify for a business investment loan, but also enables to obtain a lower interest rate. Therefore, a borrower must consider hiring a professional business plan developer to write or at least edit the plan.

 

Check Personal Credit Rating

Since a startup does not have any credit history of its own, the lenders generally review the individual credit ratings of its owners. Borrowers are advised to review copies of their credit reports to ensure that the information is recent and accurate. They must negotiate with existing lenders to remove negative transactions from the report, if possible.   

 

Finally, a business owner can consider pledging collateral to qualify for and obtain a business loan faster. Offering collateral improves the chances of acquiring a business investment loan as it demonstrates the borrower’s seriousness about repaying the business loan. It also instills confidence in the lenders. A borrower can pledge business and personal assets in favor of a business loan.

 

However, offering a personal asset, such as a principal home as collateral, can be extremely risky. This is because should the business fail, not only will the owner’s source of income be blocked, but s/he will be left homeless as the home will be repossessed.    


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