Take out a bank loan to finance your business creation project

The bank loan is a financing solution very widely used by business creators.

Generally speaking, a well-prepared, coherent project carried out by one or more motivated creators will have every chance of obtaining bank financing.

Conversely, a project presenting an unbalanced financing plan and few convincing elements on its market will not present sufficient guarantees to attract a banker. It's obvious !

Summary 

What you need to know before using a bank loan

A bank is a company whose main activity is to finance the economy through its public and private companies; like any business, it seeks to minimize its risk-taking and optimize its profitability.

Alongside their own commercial requirements, the so-called “Basel III” agreements oblige financial establishments to respect a certain ratio of equity in relation to loans granted in order to consolidate structures in the event of a new financial crisis.

For these reasons, banks are extremely cautious in their risk analysis. They generally do not want to risk more money in the project than the creator(s) themselves. In the same way, they prefer to share the risks with as many partners as possible to limit the negative effects.

This partly explains why some business creation projects encounter difficulties in obtaining bank financing. These are generally projects: 

• considered "too daring",
• or presenting an financing plan , unbalanced
• or carried by one or more creators who do not have the experience desired by the bank,
• or not having a level of capital , sufficient
• or whose product/service does not seem to meet market needs ,
• etc.

Finally, it should be noted that each banking establishment has its own criteria for granting or not granting financial assistance to a new company. 

The main points of vigilance that facilitate obtaining a bank loan 

The minimum intake 

As a general rule, it is advisable to balance equity and debt at best (50/50). However, the bank can reduce its equity requirement to a ratio of 30% on average (70% debt for 30% equity) or lower when the loan finances a "limited risk" business creation of following industry standards.

Be that as it may, a lack of capital will be deemed unacceptable by the banker responsible for studying the company's business plan. 

The greater the amount of your contributions, the more likely you will be to obtain your loan.
Whenever possible, ask those close to you for help . There are tax benefits for them at stake!

In addition, there are other financial solutions to supplement your personal contributions . Discover them!

Competition between establishments

It is recommended to compare the different bank offers because the terms ( TEG interest rate , repayment period, guarantee, etc.) may vary from one bank to another. The competition between agencies makes it possible to negotiate better conditions or less restrictive clauses but above all to avoid disappointments when funding is rejected.

Note: loan processing times can vary from a few days to a few weeks depending on the size of the branch and the level of risk of the project. 

If your financing needs are significant, why not consider going through a  professional financing broker  ?   For you, it is the assurance of finding one (or more) banks likely to be interested in your project;   for the banks, it is the assurance of having in hand a file already examined and presentable (therefore considered solid). 

 The loan agreement

Whatever the bank and the nature of the project, the decision to grant a loan is always motivated by concrete elements present in the business plan (business plan) but not only. Indeed, a business plan drawn up for a business creation is always built on the basis of more or less credible hypotheses. It is essential that these, and more particularly those relating to the working capital requirement (WCR) , be as realistic as possible based on documents ( quotes , order commitments, etc.). However, the ability of the manager(s) to manage and develop the business is essential in the choice made by the bank whether or not to lend the amount necessary for start-up. 

In order to avoid any stress while waiting for the loan allocation decision, ask what the processing time for your file will be during the first meeting with your banker. 

Also keep in mind that the banker will primarily look  at your company's ability to repay its loan  and therefore generate good profitability.   You will therefore have to convince him of your ability to achieve this by showing the  consistency between you and your project  . 

Diversification of funding sources 

As banks increasingly wish to share the risk of financing a business creation project, it is often necessary to find additional resources to finance one's project . This may be :

• obtaining a loan of honor , to supplement its own funds, 
• the creation of a "banking pool": several banks finance the same project.

What to do in case of refusal of a bank loan?

The refusal should not be considered as a negative element but as an additional phase of reflection allowing the necessary adjustments to be made. Normally, the refusal of a bank must be justified and argued.

In the event of a refusal, contact a support organization to validate your financial assumptions with them and check the viability of your project.

You should also know that it is always possible to call on Credit Mediation, whose mission is to facilitate access to credit for companies.

You also have the opportunity to go through crowdfunding: 

How to get a bank loan

Bank loans granted as part of the creation of a business generally extend over a period of between 2 and 7 years. In the case of real estate acquisitions, the loan can be spread over a longer period (15 to 20 years, or even more). 

What are they funding? 

Although it is difficult to generalize about the practices of banks, it can nevertheless be noted that they favor the financing of durable goods (vehicles, computer equipment, machine tools, etc.).

They will less easily grant you the capital necessary to finance the activity itself ( working capital requirement ).

The guarantees requested 

When granting a loan, the bank generally requires the creator to provide guarantees or his personal guarantee.

On the acquisition of movable property, the bank generally uses collateral to cover its risk of loss. Nevertheless, these pledges (goodwill, equipment and tools, vehicle) are generally not sufficient to cover the entire risk. The project leader is therefore also asked for a personal guarantee . This is based on the statement of assets of the guarantor (the entrepreneur himself or a third party) depending on the amount borrowed.

Find out about the  guarantee schemes  that have been put in place to facilitate obtaining a bank loan.   Having a good knowledge of it will facilitate your loan application. 

2 mistakes to avoid when negotiating your bank loan

Minimize the amount it is necessary to borrow to ensure the proper functioning of your business.

Creators often tend to underestimate their needs to limit debt. Don't fall into this trap! 

A good assessment of your needs will result in:

- to secure the start of your activity by anticipating the cash flow discrepancies that you will inevitably encounter,

- to give credibility to your file vis-à-vis a funder,

- and thus facilitate the obtaining of financing.

Act hastily. Take the time to properly prepare your business creation project . Your presentation file must be complete, precise, clear and neat... in a word "salesman"!

Follow the advice of Risdosagalavsjilong to draw up your business plan and, above all, prepare for the interview with the help of an adviser . Practice pitching your project . 

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