How to Obtain Loans the Easy Way

Some businesspersons cannot understand why a lending institution refused to lend them money. Others have no trouble getting funds, but are surprised to find strings attached to their loans. Such owner-managers fail to realize that banks and other lenders have to operate by certain principles just as do other types of business.

This Guide discusses the following fundamentals of borrowing: (1) credit worthiness, (2) kinds of loans, (3) amount of money needed, (4) collateral, (5) loan restrictions and limitation, (6) the loan application, and (7) standards which the lender uses to evaluate the application.

Introduction

Inexperience with borrowing procedures often created resentment and bitterness. The stories of three businesspersons illustrate this point.

"I'll never trade here again," Bill Smith said when his bank refused to grant him a loan. "I'd like to let you have it, Bill," the banker said, "but your firm isn't earning enough to meet your current obligations." Mr. Smith was unaware of a vital financial fact, namely, that lending institutions have to be certain that the borrower's business can repay the loan.

Tom Jones lost his temper when the bank refused him a loan because he did not know what kind of or how much money he needed. "We hesitate to lend," the banker said, "to business owners with such vague ideas of what and how much they need."

John William’s' case was somewhat different. He didn't explode until after he got the loan. When the papers were ready to sign, he realized that the loan agreement put certain limitations on his business activities. "You can't dictate to me," he said and walked out of the bank. What he didn't realize was that the limitations were for his good as well as for the bank's protection.

Knowledge of the financial facts of business life could have saved all three the embarrassment of losing their tempers. Even more important, such information would have helped them to borrow money at a time when their businesses needed it badly.

This Guide is designed to give the highlights of what is involved in sound business borrowing. It should be helpful to those who have little or no experience with borrowing. More experienced owner-managers should find it useful in re-evaluating their borrowing operations.

Is Your Firm Credit Worthy?

The ability to obtain money when you need it is as necessary to the operation of your business as is a good location or the right equipment, reliable sources of supplies and materials, or an adequate labor force. Before a bank or any other lending agency will lend you money, the loan officer must feel satisfied with the answers to the five following questions:

1. What sort of person are you, the prospective borrower? By all odds, the character of the borrower comes first. Next is your ability to manage your business.

2. What are you going to do with the money? The answer to this question will determine the type of loan, short or long-term. Money to be used for the purchase of seasonal inventory will require quicker repayment than money used to buy fixed assets.

3. When and how do you plan to pay it back? Your banker's judgment of your business ability and the type of loan will be a deciding factor in the answer to this question.

4. Is the cushion in the loan large enough? In other words, does the amount requested make suitable allowance for unexpected developments? The banker decides this question on the basis of your financial statement which sets forth the condition of your business and on the collateral pledged.

5. What is the outlook for business in general and for your business particularly?

Adequate Financial Data Is a "Must"

The banker wants to make loans to businesses which are solvent, profitable, and growing. The two basic financial statements used to determine those conditions are the balance sheet and profit-and-loss statement. The former is the major yardstick for solvency and the latter for profits. A continuous series of these two statements over a period of time is the principal device for measuring financial stability and growth potential.

In interviewing loan applicants and in studying their records the banker is especially interested in the following facts and figures.

General Information:  Are the books and records up-to-date and in good condition? What is the condition of accounts payable? Of notes payable? What are the salaries of the owner-manager and other company officers? Are all taxes being paid currently? what is the order backlog? What is the insurance coverage?

Accounts Receivable: Are there indications that some of the accounts receivable have already been pledged to another creditor? What is the accounts receivable turnover? Is the accounts receivable total weakened because many customers are far behind in their payments? Has a large enough reserve been set up to cover doubtfull accounts? How much do the largest accounts owe and what percentage of your total accounts does this amount represent?

Inventories: Is merchandise in good shape or will it have to be marked down? How much raw material is on hand? How much work is in process? How much of the inventory is finished goods?

Is there any obsolete inventory? Has an excessive amount of inventory been consigned to customers? Is inventory turnover in line with the turnover for other businesses in the same industry? Or is money being tied up too long in inventory?

Fixed Assets: What is the type, age, and condition of the equipment? What are the depreciation policies? What are the details of mortgages or conditional sales contracts? What are the future acquisition plans?

If you Operate a factory, wholesale outlet, retail store, Service store, or are a builder, you'll need to sell. No matter how good
your product is, regardless of what customers think of it, you must sell to survive.

Direct selling approaches are through personal sales efforts, Advertising and, for most businesses, display - including the
styling and packaging of this product itself - in kitchens, at the establishment, or both. Establishing a fantastic reputation
with the general public through anyhow and distinctive services is a direct process of selling. While the latter shouldn't be
disregarded, this short discussion will be restricted to direct marketing methods.

To establish Your Company on a firm footing requires a great deal Of competitive personal selling. You might have established
competition to overcome. Or, if your idea is new with minimal if any competition, you've got the extra problem of convincing
people of the value of this new idea. Private selling work is nearly always essential to achieve this. If you are not a fantastic
salesperson, seek a worker or asociate who's.

A second way to create sales is by marketing. This may be done Through papers, shopping papers, the yellow pages section of the
phone directory, along with other printed periodicals; radio and tv; handbills, and direct email. The media you choose, in
addition to the message and kind of presentation, depends upon the specific customers you would like to reach. Plan and prepare
advertising carefully, or it will be unsuccessful. Most media will have the ability to describe the characteristics of their
audience (readers, listeners, etc.). Ever since your first planning described the qualities of your potential clients, you want to
match these features with the media crowd. If you're selling expensive jewelry, do not market in high school papers. Should you
repair bicycles, you likely need to.

Advertising can be very costly. It Is a Good Idea to put a limit upon An amount to spend, then remain within that limitation. To
assist you in deciding how much to spend, study the working ratios of similar companies. Media advertising salespeople can help
you plan and even prepare advertisements for you. Be sure to tell them your budget limits.

A third method of sparking sales is effective displays both in Your place of business and outside it. If you have had no prior
experience in screen function, you are going to want to study the subject or turn the task over to somebody else. Observe screens
of different companies and read novels, trade magazines, as well as the literature provided by equipment manufacturers. It may be
wise to hire a display expert for your opening display and special occasions, or you could get the help of one on a part time
basis. Much is dependent on your kind of business and what it takes.

The proper number and types of selling effort to utilize change from business to business and from owner to owner. Some businesses
prosper with low-key sales efforts. Others, such as the used-car lots, thrive on competitive, hoop-la promotions. In any case, the
significance of successful selling can't be over-emphasized.

On the other hand, don't Eliminate sight of your Key goal - to Make a profit. Anyone can produce a large sales volume selling
dollar bills for ninety bucks. But that won't last long. Keep control of your expenses, and price your product carefully.

Record Keeping. One essential element of business management is the keeping of adequate records. Study after study shows that many
manager failures could be attributed to insufficient records or the proprietor's failure to make use of what information was
accessible . Without records, the businessperson can't see in advance which way the business is going. Up-to-date records may
forecast impending tragedy, forewarning one to take action to prevent it. While additional work must keep an adequate set of
documents, you will be more than repaid for the effort and expense.

If You Aren't prepared to keep adequate records - or have somebody Keep them - you shouldn't attempt and operate a small business.
At a minimum, records are needed to substantiate:

1. Your returns under taxation laws, such as income tax and social Security legislation;

2. Your request for credit from equipment makers or a loan From a bank;

3. Your claims about the business, in case you wish to sell it.

However, most important, you want them to run your business successfully And to raise your profits. With a decent. Yet simple,
bookkeeping system you may answer such questions as:

How much company I doing? What are my expenses? Which seem to be too high? What is my gross Profit margin? My net profit? How much
am I collecting in my charge business? What's the state of my working capital? How much money do I have on hand? Just how much in
the bank? Just how much do I owe my Providers? What is my net worth? That is, What's the worth of my possession of The business?
What are the trends in my Receipts, expenses, profits, and net worth? Is my financial situation improving Or growing worse? How do
my resources compare with what I owe? What's the Percent of return on my investment? How many cents from each dollar of Earnings
are net gain? Answer these and other questions by preparing and studying balance sheets and profit-and-loss statements. To do
this, it's Important that you record information regarding trades as they happen. Keep This data in a detailed and orderly manner
and you will have the ability to answer the above questions. You'll Also have the answers to these other vital questions About
your business as: What products or services do my customers like best? Next best? Not at all? Do I take the product most often
requested? Am I Qualified to render the services they demand most? Just how many of my charge Customers are slow payers? Shall I
switch to money only, or use a credit card Charge plan?

 epoxy-flooring essential-oil estate-sale esthetician event-decorating event-management event-rental excavation exotic-car-rental expedite exterminator-pest-control eyeshadow fabric-store factory fashion-accessories fashion-designs fast-food feedlot fertilizer fiber-optic finance fingerboard firewood fireworks flea-market flight-school flipping floor-cleaning flooring-installation floral-design flower-nursery food-cart fragrance-oil freight-brokerage funeral-home funnel-cake furniture-delivery furniture-flipping fur-slide fursuit game-parlour gaming-cafe gaming-lounge garage garden-maintenance garment gas-agency gelato gemstone