A lot of new business owners like to move quickly. They work through their decision to move into business ownership, do a little research, decide how much money they have, how much they can borrow and then start doing “it”…whatever “it” means for them and their business.
There’s no question that research and understanding your finances are important. Going into business requires money and what goes on around it. However, if you want to borrow money to help fund your new business you are going to need at least 4 things. If you can’t be bothered getting these together you will not be taken seriously by sellers, landlords, business brokers, lenders or other related parties. Or worse still, you’ll be taken seriously, asked for these documents and when they found not to be in order, your dream will be shattered.
These four things are your resume, your credit score, your credit report and your personal financial statement.
Each of these is important for the following reasons. For lenders to let you borrow money they want to see your resume so they can see you have the skills to manage the money they lend you. If you’ve spent the last 10 years of your career in the IT industry and now want to borrow money to buy a preschool, then you may not be taken too seriously. Build a strong resume so it highlights your management skills and be prepared to tweak your resume to support each loan application.
Second, if your credit score is 650 or less, you will struggle to get a loan. That may sound blunt but it’s the truth. The main purpose a bank is in business is to make money. They make money by giving loans to people who can pay them back. A low credit score is one of the tools a bank uses to decide whether you are worth the risk and therefore if you will pay back the loan, with interest. Yes, this is very simplistic but your credit score is very important.
Third, before you apply for a loan, get a copy of your credit report to make sure it’s accurate and there are no errors on it. There are a few reasons for this. Credit reports are notorious for errors. Imagine your frustration to have a great credit score, spend weeks building and executing your business plan, building relationships with suppliers, signing a lease on the perfect location for your person and a major vendor asks for a copy of your credit report to complete their paperwork and they find a bad comment on your credit report and they decline your request! All because there was an error on your credit report that should not have been there in the first place. Bottom line; let’s get this taken care of now so you have time to get things in order.
The final item is to build a personal financial statement. This document may be required by vendors, banks, landlords or other parties that you are planning on buying a business from. If you have this information prepared and ready to go it is one less task to worry about and having it prepared shows you are serious with what you want to do.
Starting a business is exciting, stressful, exhilarating, tiring, stimulating and fun to name a few things. A great business has strong foundations. To build strong foundations always look first at your responsibility and what you do so the rest will take care of itself when you get to it.
If you would like some free documents to help plan your move into business ownership, please visit my website,
www.Andrew-Rogerson.com. Once the home page loads, choose the “Sample Documents” option from the menu on the left hand side and help yourself to 21 documents including business plans, break even analysis, profit and loss projectors, balance sheets, loan amortization calculators and more.
