The most difficult thing that upcoming entrepreneurs encounter getting unsecured small business loans given that most dont have assets to tie as collateral. Here you are with some great small business ideas but shy away at taking a shot from any, reason being you don't have enough start up capital. The bad news is, nobody will come from no where and give you an unsecured small business loan. But does it mean you lose hope? No. even the owners of some of these multinationals did not have enough capital for start up.The paragraph above brings us to the big question of how to turn things around and make these lenders start seeking you to finance your projects. I am going to give you a step by step process of winning an unsecured small business loan.
Step 1: Patience.
I must emphasize that the strategies I am going to highlight below are not for somebody who wants to be super rich in the next 6 months. This is a strategy for a person who has a slow but sure goal of winning the financing battle slowly but surely. The problem with most people who want to be entrepreneurs especially those who are youthful is that they want instant results. Most of the times it does not work and it is therefore important you start adjusting to a patience attitude.
Step 2: Review your own starting capital.
What is the total amount that you have from your own savings and maybe funding from parents and friends? This is the basis for you to set the ball rolling. You will base your strategy on what you have.
Step 3: Review your products.
The reason for reviewing these products is to analyze the products according to expected capital requirement and turn-over. Can each product be sold separately? If yes, bingo. Select the one product whose maximum capital requirement for a sizable market is equal to or less than your available capital without requiring a loan.
Step 4: Review your business plan.
Remember you wrote this business plan with the assumption that you have all the required start up capital at hand. It is time to come back to the realistic world of scarce resources. The biggest reason for reviewing your business plan is to set new time frames for achieving each and every goal given that you will be rolling each product at a time.
Step 5: Open a business bank account.
Before you decide on which bank to open an account with, review their terms of lending and go for the one that suits your requirements especially the one's that lend unsecured small business loans for perfoming businesses.
Step 6: Roll out your first product.
The major reason for rolling out your first product is not high profits but a cash flow. The best strategy to do this is to target a small market that won't put pressure on your production capacity. All sales revenue should be banked and all costs paid through the bank. Give yourself about 3-6 months servicing your small market while keeping daily activity records. There are two major benefits of doing this.
- you get to learn a lot about your product and the market (experience).
- Your cash flow will give you credibility in the eyes of your bank
Step 7: Negotiate with your suppliers.
By now your suppliers have trust in you. Negotiate with them to increase what they supply to you on credit or increase the credit payment days. This helps you to expand your target market by a certain percentage. Your cash flow figures increase by a certain percentage as well as your profits. Be assured your bank always notices this.
Step 8: Roll out your second product.
I advice you to roll out your second product only if it will not require additional fixed assets. If it does, just leave it at the moment and keep expanding your horizon.
Step 9: Approach your bank for cash flow financing
By now, you may have found customers that make big single orders. Since you don't want monthly financial obligations at the moment, negotiate with your bank to be financing orders that are over and above what you have in the bank. This is called an overdraft. If you do this repeatedly for some time, chances are that the bank will approach with the idea of giving you a loan to finance your operations.
Step 10: Negotiate your first unsecured small business loan (small business administration loans).
Based on the facts and experience of your business, you are now in a better position to negotiate the terms of the loan especially the small business loan rates. You are also in a position to reject terms that will not be healthy for you business. Remember that your bank has more trust in you and don't view you as risky as a start up and they also need your business now. Your first loan should not be used to buy additional fixed assets for a new product line. This is not the time for rolling new products that require costly fixed assets. This is a loan specifically used to fine tune your operations. Make sure you repay this loan in time to increase your credibility
Step 11: Negotiate your second unsecured small business loan (asset finance loan).
By now you are fully aware of your market especially the market trends, tastes and preferences. You are also assured that the income from your current product can service the financial obligations that will come with the new loan. Roll out your new product. Chances of success are higher because there is already a market which you know about. By the time you finish repaying this loan, banks will be running after you to finance your projects because of your high credit rating from the credit bureaus.
This strategy of financing your business through unsecured small business loan takes 3 years or more to accomplish but chances of failure may be lower. Now if this strategy is ideal for you, its time to stop procrastinating and start doing something.
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