Certain factors must be considered by entrepreneurs looking to raise capital through loans, while sources of capital still remain largely the same – as they were in the last two decades.
Jumia, Nigeria’s number one shopping destination shares a few of the important considerations.
Firm up your business plan
No doubt, as an entrepreneur, you have a business plan that serves as a compass for your business. Nonetheless, if you’re at the precipice of obtaining a business loan to advance the successful running of your business, it’s important that you firm up your business plan, as potential lenders will scrutinize every single element contained in the plan. You might likely jeopardize your only chance of raising capital if there are avoidable loopholes in the plan.
A potential lender will be keenly interested in knowing that you are running a credible business and that you have the knowledge and skill-sets required to grow it into something great. Include absolutely everything that has to do with your business, such as goals, competitors, past and projected revenue and expenses, market analysis, and how you intend to grow your company. This will be the first thing they read, and it could be the last if they are not immediately interested.
Research your borrowing options
There are a whole lot of options for loans today. You have the banks, online loan lending platforms and companies offering loans to entrepreneurs.
A good example of the latter is Jumia Lending where vendors selling on the platform are granted easy working capital with no collateral. The rules for getting a loan are simple: You must have been selling on Jumia for at least six months. Your six-month average sales revenue on Jumia must be greater than N100,000. And also, your six-month average items sold on Jumia must be more than 25 items.
Prepare financial statements
You will want to include any past financial statement you can provide for the lenders and future projections. Come up with a plan that you will follow, and show projected numbers. This will allow lenders to see your goals clearly and enable know you can earn enough to pay them back
Include your cash flow statements, income statements, and balance statements for the past three to five years. Show your estimates for these statements for the next few years, taking into account all seasonal changes in your business and how you will use the money you are borrowing.
Know your capacity for collateral
Certain types of loans will require you to put down some form of collateral. If you choose this type of loan, you need to have a good idea of how much your collateral is worth. Lenders will want to know this number. And you will want to know that you have something of tangible value to secure the loan. Just make sure that you’re not going to default on the loan and lose whatever property you use.
Understand what the loan will cost you in the end
You will want to know exactly how long it will take you to pay off your loan. Find out what kinds of offers various lenders will be able to give you. Use those interest rates and fees to estimate your payments.
Include this information in your financial statements, but you should also add up all of your payments to see how much the loan will cost you. Read the terms and conditions attached to each loan offer before you decide which is best for you, and be able to show the lenders that you are a good investment.
Source: Business Post