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Thinking Of Taking A Business Loan For Your Company? Here Are 6 Things You Need To Consider

# 1 Specify the purpose of the funds

It is important to identify the specific expense the loan is expected to cover. Besides covering business expenses, the funds can be used for new projects, such as business expansion, asset building and cash flow maintenance.

# 2 Determine the amount you require

With the purpose for the funds set, make the necessary calculations such that you know the amount required. Financial modelling tools can be used to help make accurate financial projections.

There are three forms of capital that can help you divide your needs – fixed, working and human capital.

Fixed capital is composed of durable producer goods, which are used in production again and again until it is worn out. Plants, tractors, and factories are examples of fixed capital. Typically, fixed capital is expensive and illiquid, but necessary for long-term business operations.

Working capital is comprised of single-use producer goods, such as raw materials, goods in process, and fuel. Anything that is used up in a single act of production is considered working capital. Working capital can prove to be more difficult to manage.

Human capital can easily be defined as the people working for your company and their individual skills, educational background, health, etc. Like fixed capital and working capital, spending for human capital needs to be as detailed as possible. Payroll costs, the budget for more human resources, etc – note it all down and create an expense range.

# 3 Determine your ability to repay in a specific period

During the loan application, you will be required by the lender to get your company’s balance sheets, income statements, cash flow statements, and bank statements. Given this information, you must be able to make accurate and realistic projections on your ability to repay.

# 4 Which financial institution is most appropriate for my credit needs?

Different financial institutions have different loan products and structures. Do research on products offered by all the different financial institutions, government-backed loan packages, and alternative financing platforms.

# 5 Have I met my chosen lender’s requirement?

It is important for you to find out the lender’s requirements and before you make a loan application. This is to prepare in the unlikely event of a rejection, the next lender will likely question you why you were rejected for other business loans.

# 6 Do I have my documents in order?

While required documents vary across different lending institutions, every lender will ask for financial statements. In addition, you may be asked for your credit report (personal and/or business), tax returns, bank statements, collateral information (depending on loan type), and legal documents (business licenses and registrations, articles of incorporation, etc) Ultimately, applying for a business loan is all about preparation.

4 Things About Your Personal Finance To Handle Before Thinking Of Starting Your Own Business

Prime Minister Lee Hsien Loong made a trip down to Silicon Valley earlier this month to visit some of the top start-ups in recent years. During his trip, he met some of the top entrepreneurs in the world over including Facebook’s Mark Zuckerberg and Tesla & Space X CEO Elon Musk.

Starting your own business is not easy, especially if you are not born with a silver spoon. Aside from needing a top notch idea, a great team for execution, the perfect timing, the right investors and a nice dose of luck, you also need to get your own personal finance in order…first. Failure to do so would cause unnecessary stress to an already stressful career.

Before you think of taking the plunge to be your own boss, here are some personal finance matters that you should consider first.

Read Also: 5 Signs You Are Ready To Change Your Job

1. Can You Embrace A Simple Lifestyle?

When you run your own business, a large part of the effort you put in is to grow the business for tomorrow. Start-ups or new businesses do NOT work for today. They work for tomorrow, while balancing today’s need.

When you hustle, you hustle for tomorrow.

This has two main implications.

The first implication is that if (and that’s a big “if”) the business succeeds, you get to enjoy the long-term value that it brings to you, its shareholders. That could be in the form of passive income to shareholders or a big exit through an eventual sale of the business.

The second implication is that you are not going to be paid well (if any) for running this business of yours today. And that “today” can easily last 4 to 5 years.

Forget about flashing your CEO namecard at clubs or buying expensive bottle of drinks for your entourage, you wouldn’t be able to afford it. Those restaurant meals that your friends are enjoying may also be out of the question.

Rather, homecooked dinners followed by cheap coffee are likely to be the norm. So would squeezing onto the train to get to work each morning.

Billionaire Elon Musk once lived on about $1 per day in his college days. The reason for him doing so was to test himself if he really had what it takes to be an entrepreneur, and be able to survive under extreme circumstances. Elon Musk rational was that if he could survive on $30 per month on food, then it shouldn’t be too difficult for him to earn and survive on that amount as an entrepreneur.

He could. Can you?

2. Are You Able To Endure Being Underpaid?

Businesses take time to grow. If you are creating a start-up (i.e a business that nobody has done successfully), you will need even more time to grow it.

People who work regular jobs expect to be paid salaries that commiserate with their average output. When we are worth $3,000 per month as a fresh graduate, we expect to be paid that amount. When our skills and experiences increase, we expect to be paid more.

When you are working on your own business, this logic needs to be thrown out of the window. Even if you are the super employee/boss of the company doing everything from closing business deals, delivering great products and services to your clients and being a one-man accounting team, you might still be paid $2,000 per month – for doing a great job.

You might be working harder and smarter than all of your peers and still be earning the least amount of money among everyone whom you know, at least for the first few years.

Can you handle that?

3. Can Your Family Cope Financially With Your Decision?

Most of us have financial commitments in life. Some of these commitments are long-term, such as paying for the home mortgage and taking care of the needs of our children and elderly parents.

Like it or not, financial commitment to our family is one thing that we cannot get ourselves out from. You might be able to live a simple life, but your family would need to be able to cope and live with that decision you are making.

The hard and unfair truth is that not all of us are born into family that can manage the stress of financial uncertainty.

4. Do You Have A Strong Savings Plan?

Even if your business eventually turns out to be sustainable in the long run, personal cashflow challenge is one aspect that you cannot ignore.

Most businesses have cashflow challenges. Account receivable is one area that finance managers are always keeping a lookout of because poor management of your cashflow can potentially sink an otherwise profitable business.

From an individual standpoint, there might be days where you might need to allow your business to owe you unpaid salary in order to stay afloat. Your personal savings will have to step in for these challenging days in order for you to tide over short-term cashflow difficulty.

Read Also: 5 Reasons To Quit Your Job Even If You Have Not Found A New One

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