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Before your business takes the dive into debt financing, make sure you have prepared for the associated risks with borrowing, so when you do take the leap, you don’t belly flop. Preparation is vital. How can you get a perfect 10 so you can finance your business? Let’s take a step back and look at how banks evaluate risk and how they view businesses.
Depending on what stage your business is in will have a huge impact on the way a bank looks at your business:
* Stage 1: Are you a start up (have you been in business two years or less)?
* Stage 2: Are you an established growing business (have you been in business for more than two years and still growing; i.e. are your sales still expanding, not yet stabilized)?
* Stage 3: Or, are you a mature business with a stable sales cycle (have your sales reached a plateau and are no longer growing rapidly)?
Knowing where your business is in its growth cycle will better help you prepare for the bank lending process.
Debt Financing for a Start-up (Stage 1)
A start-up business is going to have the most difficult time obtaining bank funding. Think about it; ideas are worthless without execution. If we could all capitalize on our ideas, then everyone would be in business for themselves.
Evaluating Risk
Banks approach each deal based on the amount of risk they are undertaking and start-ups are as risky as they come. This is why it is vital for a business to be completely prepared for the bank underwriting process. You need to be prepared to answer any and every question that a bank might ask, be your best advocate, and able to sell your business as a good risk.
So, what can you expect? While every deal that a bank looks at is unique and presents its own risks and challenges, there are some common things that most banks will look for.
To read more about the stages of financing your business, visit Sparxoo.com
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