8 Steps to a More Successful Start-Up Loan Application
This message is brought to you by Citizen Entrepreneurial Development Agency - CEDA.
To qualify for any kind of business loan is not easy.
The vast majority of submissions that financial institutions receive simply do not make the grade, and, out of necessity, every lender has to be careful about which applications they approve.
Here are eight important steps to improve your chances of securing a positive result.
1. Realise that money is not the most important thing
Before we move on, you must understand the first point. Having enough money to start your business today does not mean that your enterprise will be a success in the long term.
The most important piece of this puzzle is you, the entrepreneur. Your character. Your leadership. Your hunger. Your example.
Not the loan.
Can you make these promises to yourself?
- I promise to arrive early and leave late, every day.
- I promise to simplify my life and set aside all forms of personal excess.
- I promise to raise to the sky and maintain my standards of excellence, at all costs.
- I promise to respond immediately when mistakes are made.
- I promise to double my efforts to walk in the customer’s shoes.
- I promise to try again after every setback.
This is what separates good entrepreneurs from the rest. If you’re willing to be a genuine leader and take responsibility for your own success, you are a lender’s dream come true.
2. You must be happy to start small
Take a moment to think about some of the world’s greatest businesses and your favourite brands. The vast majority of these projects started out extremely small. ‘On the kitchen table’ is the common expression.
These founders endured massive sacrifices and stretched their financial resources as far as they possibly could.
They started smaller than you.
Our experience shows that being small is the best way to ensure that your business survives in the early days.
Businesses which start small enjoy greater chances of success because:
- You keep your running costs as low as possible
- You learn how to solve problems without throwing money at them
- You can build closer, more personal relationships with customers
- You learn the business inside out because you’re personally involved in the daily responsibilities.
3. Say goodbye to your day job
If it’s your intention to hold on to a safe, comfortable life as an employee and simultaneously attempt to run a business on the side ‘by remote control’ – very few lenders will be interested in you.
Providers of finance are looking for entrepreneurs who are genuinely focused on their business ideas.
Are you willing to put all your time, sweat and emotional effort into the success of your new enterprise?
If not, it’s better for you to concentrate on formal employment at this time.
4. Risk something of your own
Collateral is a fact of life in the money-lending industry.
If someone lends you money, he needs to know that you have enough assets to pay that amount back if things go wrong. Perfectly fair and reasonable.
However, we meet too many applicants who have absolutely no desire to risk anything of their own when it comes to the success of their venture.
They make no attempt to put up any collateral at all.
Is it fair and reasonable to expect your lender to single-handedly bare the risk and financial burden if your business does not succeed?
Although collateral is something which many financial partners are willing to negotiate on, the simple fact is that candidates who do not offer any collateral to support their loan application are less likely to succeed than those who do make the effort.
Your willingness invest something of your own tells us a lot about your character – and your dedication.
5. Take innovation seriously
At CEDA, we receive dozens of applications every single day and, unfortunately, many of them look almost the same.
We need to see more innovation from our entrepreneurs. We need to see more new ideas.
We speak about innovation all the time because we know that success in business often requires new ways of thinking.
If you want high rates of growth and high rates of profitability, you cannot do the same things that everyone else is doing.
But if you have imagination, practicality, and a first-world mentality to solve problems profitably and give your customers a superior quality of service, any lender will want to work with you.
But if you have no idea what to do and are just applying for a loan because you heard that a certain business idea was a ‘money-maker’ then your application could easily be rejected.
6. Build up work experience in your field
No matter what kind of business you want to to start, it helps your application if you have work experience in your industry, or at least a related field.
By building up a few years of skills, you will acquire a sharp understanding of what makes that business tick.
You’ll also be able to spot weaknesses and prevent the kinds of mistakes that could easily kill a rookie.
Do not start a business as a novice. We have learnt that this can often be a recipe for disaster.
Remember that no matter how good your business plan may look on paper, very few business plans survive contact with the real world.
A business plan cannot act as a substitute for life experience. Skills in your field is a golden ticket to success.
7. Live cheap, live smart
If you value luxury over sustainable business success, it’s best for you to finance your enterprise by yourself.
We receive requests for all kinds of frivolous, non-business related expenses.
These are the types of submissions that get rejected almost straight away.
Smart entrepreneurs live cheap. Great investors only spend money on things that will make them money. And real business owners spend every pula as if it was their last.
If a lender detects evidence that you do not take money seriously, or that you want to impress your neighbours at any cost, or that you would have a hard time managing a large loan because of material temptations, then your application will certainly not come through.
8. You misunderstand what a lender’s job really is
In CEDA’s case, the funds we use to finance entrepreneurs in Botswana are public funds.
We are accountable to every Motswana to ensure that the nation receives a positive return on these resources.
In other words: that money has to come back so that others, too, may benefit one day.
Our role is to:
- Provide support for viable business concepts
- Create sustainable employment opportunities
- Diversify the economy away from mineral dependence
- Stimulate competitiveness and innovation in Botswana, and
- Promote citizen empowerment.
Any lender has the right to be selective.
A business loan is a strictly business transaction.
It’s also a huge privilege to secure this funding.
It cannot be given. It can only be earned.