What is Business Plan and how it helps-Ideal Candidate for Loan:Banks lend money to businesses, and they have a lot of knowledge related to lending to businesses. But the question is, why should you go out to take loan from a bank? The reason is very simple: the cost of funds from a bank is the lowest in the market. It is not their own money; it is the public’s money. Hence, banks are very cautious in lending money. Banks do not invest money in business nor take any shares, and business owners can run the business according to their mission and vision. In the case of investors, they invest money in business and take some percentage of shares in the company, and they bear equal risk. And they seek high returns, like 5 times, 10 times or 20 times. So you can understand that the cost of funding is lower if you take loan from any bank.
But banks do not lend money to anyone; banks lend money to their ideal candidate who can return money in any scenario. Now you need to understand the ideal candidate for a loan. Banks lend money to existing businesses that have good cash flow so that they can repay the loan without any effort. Banks shall provide loans for a new business if the business owner has a good record of running a similar business profitably. If a business owner has good business plan, then a bank can provide loan for the business. Suppose a business owner has sufficient reserves and personal collateral which can help him to repay loan from the bank in any scenario. In that case, the bank can lend money to the business owner. In other words, you can say that if a bank is confident that you can repay the loan in any scenario, then the bank will lend you money for business. Or you may say that the bank lends money to only those people who are already wealthy. Banks provide money only to those people who do not even need a loan. So, you can say that it is a need for a bank to provide a loan to an ideal candidate; otherwise, banks cannot survive.
The second type of person who can get loan from a bank is those people who have prior experience running a similar business. For example, if you were the CEO of any company and you wanted to start a similar business, then you could get loan from the bank to start the business. Many times I have heard about this kind of people who were in top management of any company, and now they started their own business. If you want to start a business that is different from the kind of business you were in, then you can hire people who have tried experience in that business. You can hear them as an employee or as a business partner.
Approval of any kind of loan is the discretionary right of the bank, so even after all these things, banks can cancel your loan application. So, it is recommended to start business after getting funds from your family, friends, relatives, etc. Right now, I like to recommend opting for a loan only during the phase when your business needs funds to transform from a small business into a big business. If your business is capital intensive, then you may opt for loan twice. However, you have to make decisions based on the type of business you are in. Every key cannot open all the locks, so the same type of need does not survive in different businesses. So take your decision based on the type of business you are in, but if possible, take out a loan only during the scale phase. One last thing I like to recommend is to take 1 EMI at a time and Take funding twice at most, either as an investment or as a loan. First, you need to start the business, and second, you need to scale your business from a small business to a big business. Please make sure to take loan or investment only for the growth of the business. If you take loan or an investment for anything other than growth, then it may bring trouble or troubles for you in the future.
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