Statistics show that in South Africa, 70% to 80% of small businesses fail in their first year. One of the most cited reasons for this is the difficulty of getting funding. Although the business application process can be lengthy the best way to get ahead is to organise yourself in a systematic order. Therefore, the following blog should assist in simplifying the process.
Documents to keep ready when applying for your business loan:
- Business plans or project plans.
- Income statements and balance sheets of the past two years
- Tax returns to verify your income statements.
- Bank accounts for verification.
- If you have modern accounting software, you could skip these steps and draw reports directly from your software.
Preparing financial paperwork:
The best thing to do is to employ an accountant during this stage. Accountants prepare lots of loan applications so they know what you should include in your application, and how to present it. Bank managers will have more confidence in an application that a financial professional has helped prepare.
The main reason behind the financial document preparation is that the banks need to evaluate the pros and cons in funding your company.
SME business lenders will want to review your business’ recent bank statements. This process is not only to prove the legitimacy of your business, but also to defend your future cash flow expectations. When a business is actively earning revenue while managing their expenses in a healthy way, lenders will be less reluctant in their decision making when lending you money.
Historical information such as your income statements are the best way to track how your business has experienced its cash flows. Lenders find these statements useful for understanding how a business has performed over the years. Even if your expenses exceed your revenues, all types of lenders will want to view your income statement.
The balance sheet is a representation of your business’ current assets, liabilities, and sources of equity. Essentially, the purpose of a balance sheet is to illustrate what your business owns and owes. If your liabilities exceed your current assets, you may have a difficult time securing a small loan.
Your business’ tax returns can illustrate how your business has performed in the past. If your business is brand new, you should ask your accountant to help you create a projection of what your tax returns might look like in the upcoming year.
Changing finance options:
When your plan A does not work, there will always be a plan B option which just needs your time and attention. Other financing options from various providers exist, one of these options are a credit line. The credit line works just like a credit card or an overdraft, the lender gives you access to an agreed amount of money which you can allocate accordingly, you will only pay a monthly installment on the actual amount you withdrew.
Feasibility for every company who is starting up can become stressful, therefore it is always advisable to keep your overhead costs at a minimal to ensure business success in the long term. At Infinity Properties our vision and core founding lay on the basis that we wanted to bridge the gap for young south African entrepreneurs by providing affordable office space rentals. We will save you the costs while you focus on generating the long-term profitability and sustainability you need. View our available office spaces today bit.ly/2HHnQQx