You may have talent or an idea and want to turn it into reality; it’s likely you need to get a loan to start up business. Both the Internal Revenue Code, popularly known as the Congress and the Treasury Department constitute the governing rules on how loans are to be handled. The treasury department’s regulation is another set of rules that interpret the internal revenue code. The underlying loan policy includes:
1. Note that a loan is not a gross income to the loan borrower
2. The lender may not deduct the amount of the loan from your gross income.
3. The amount paid to satisfy the loan rights is not deductible by the borrower.
4. You should also be aware that prepayment of the loan is not gross income to the loan collector.
5. Inside the ledger’s gross income, the interest to be paid to the lender must be included
6. The borrower may deduct the interest paid to the lender.
Getting a loan for a startup business shouldn’t be an arduous task, but at the same time, it is not as easy as it was before the Great Recession. Right now, all banks and other lenders still give credit money for a start-up business. Below are a few pieces of advice on how to get a loan for a start-up business.
One major thing to note is the fact that establishing a relationship with the people at the lender before the loan is needed and should be taken seriously. This means that you may try to start the business before you apply for the loan. Starting up your business before applying for the loan is necessary because people do business with who they know, who they trust, and this is the same with lenders. So try as much as possible to lay down your business foundation before asking for a loan. This will also serve as an incentive for your proposal.
The next line in action is that you need to decide what the money is meant for. A good reason to get a loan for a start-up business could be financing a piece of equipment, long term software development or large seasonal sales varieties. Wrong intentions could be to acquire non-essential business assets. Thus, you must be strategic in decision making.
Of course, after knowing what you need the loan for, you should have calculated everything and make a total sum up. Be precise on the exact amount required. Startup business doesn’t ask for a large amount of loan. Lack of working capital could rise sooner than expected if you underestimate the amount of money required. Similarly, business lenders could be curious about your assumption and credibility if you miscalculate. So, for that reason, you need to be precise and correct. You must design your budget with great support by financial projection such as profit & loss statement and a cash flow statement. You must be thorough in research and reasonable in the presentation. All these tips coupled together make you a great borrower before the lender.
One of the ways the lenders ascertain your credibility as a borrower is your credit scores. It is essential to know your score and compare to that of the lender’s expectation.
• Credit score: if your credit score is meager, there will be a small percentage of getting a loan. Also, a credit score of above 650-700 does not guarantee a loan but considered acceptable. Let your credit score be at least in the 700-800 range; this is what most lenders look out for.
• Debt to income: Do not let your debt payments be more than 33% of gross monthly income.
• Time in business: Reflect a strong record of incoming account receivables to sustain your company for a future loan in your proposal.
• Report on industry risk: you need to find out how the industry you want to get a loan for a start-up business is rated. Industry risk is evaluated based on the government SIC Codes which are ranked.
• Report on cash flow: Long term survival and growth increase the chances of the business to survive slower market conditions if the operating cash margin is high. This analysis gives more future opportunities to get a loan from your lender because your ability to successfully repay can be justified
Also, make sure you know much about the lender, there are different types of lenders, and it is to your best advice to research and know which kind of lender is best for your startup business.
• Commercial banks: This type of bank is best for traditional loans
• Non-bank lenders: Lenders in search for higher return are making this multiple.
• Region-specific lenders: This refers to local community banks and other lenders that have an interest in economic development in a defined geographic or industry area.
• Micro and alternative lenders: Capital needs under $10,000 can be sourced from various crowdfunding sites. Peer to peer sites can also be sourced in getting personal loans for a startup business.
Adequately research and prepare the loan application package. myinstantoffer is helpful for investigating. This package refers to the paperwork to be submitted to get a loan. Its content often includes:
• The business owner’s resumes with the inclusion of a business plan.
• Must have projected financial results and projections.
• Must have at least three years tax return with personal financial information
• Have it at the back of your mind that lenders will search your social media sites as part of their research in giving a loan to start up business owners.
Be patient and expect to get a response within weeks (mostly between two to four weeks). Check in each week for a status. It is possible the company needs some additional documentation from you.