There is a myth that the bank will lend you business money at the earliest six months after you do business. Well, it’s not true.
We went through several banks and found that you can also earn money for the business as a start-up entrepreneur. You need a basic thing – a business plan . It needs to be clear what exactly you want to do, who you want to do it for, and what your expectations are in terms of sales, profits and total cash flow.
This is not a complicated document; an ordinary Excel spreadsheet is sufficient. It must make it clear that you know exactly what you want to use the money for in your business.
So, before you apply for a loan, think about what you need the money for. Think as an entrepreneur, not as a natural person – do not think about what you spend money on, but how you value it. If you borrow, say, 300,000 thousand Naira, you need to know exactly how this money will earn more over time than you borrow.
The business plan should answer these questions. If it has errors that you don’t see, don’t mind. We’ve found that almost every bank has business advisors whose job it is to advise and guide you on how to borrow money for the business.
For example, in Nigeria, besides regular advisors, there are also specialists for start-up entrepreneurs who can help you make your business plan feasible.
If you already know what you are investing in You have several options on what type of loan you take. First of all, think about whether your new business should also support you from the start or whether you have a different type of income (employment, pension, rental income…) that will pay you bills.
If there is a different income, you can take a private loan at the start of your business and invest it in your business. Although in general, a business loan is more profitable (just because you can put it in your corporate expenses), if you have a good income from your work and start your business alongside it, a private loan can pay off more. You will not switch to the business until the business is doing better.
As a starting entrepreneur then you have several options to get money from the bank :
You may have an authorized overdraft for your account. This option is a quick way to get money, but interest rates are more costly than other forms.
Therefore, consider it only in cases where you need to cover the shortage of money for a short period – say you have to pay urgently for goods or taxes of the state, but the invoices have been delayed or have a long maturity of 60 or 90 days.
If you want to finance a longer-term investment and know what the money is going to be used for (machinery, plant equipment, inventory, etc.), an investment loan or leasing is more appropriate for you.
The investment loan will be given by the bank to start-up entrepreneurs for a specific purpose. You also need to document the use of money. The advantage is that the interest rates are much lower than the permitted overdraft and you can set the maturity of the loan for several years.
So if, say, you need to buy inventory that you will gradually sell, this type of loan is more appropriate than an overdraft.
Leasing is not just about cars. You may not know that you can finance machines as an entrepreneur through leasing. For example, a production line if you start a production business.
What to think about before you get into debt.
Make a quality business plan . Put in it all the fees and investments you need to make to get your business up and running. Don’t forget even small items, they can make a big sum.
Do not forget about people or yourself . If you expect a business to run quickly, you will need employees. Put all the investment related to recruiting into your projected costs – for example, be sure to include income tax advances that you will have to pay as part of your cash flow.
Plan everything you can . The business will prepare a lot of unexpected situations anyway, so the more things you can plan, the more energy you will remain for improvisation.
For every situation, it’s good to have Plan B ready – what you do when things don’t go as you expect. For example, where is the limit when you don’t want to grow your business? Or when is it more appropriate to keep her as a secondary income and to be employed again?
Think of money as an investment, not an expense.
If you have all this thought through, then go to the bank for advice. Since you do not yet have a business history, it is your personality and your feasible goal that will show the bank that you can value the borrowed money. Be prepared for detailed questions about your plan. It’s logical.
The bank also wants you to do well – it just doesn’t lose money and helps create a new successful business.