Starting a business is one of the most rewarding, yet difficult endeavours to undertake. The road to profit is very challenging. Business owners need a great deal of money to launch their venture. They depend upon commercial lending for financing. However, many times loan applications are rejected by banks.
Here’s a list of reasons a business loan can be rejected.
- Bad credit –
Even though not everyone has the best credit, as far as lenders are concerned, this just isn’t an excuse. Poor credit is simply a sign that a borrower, or their business, does not prioritize repaying their debts. Credit score of the borrower is very important criterion for money lenders to decide whether to accept or reject a loan offer. Most banks typically won’t loan to a business owner whose personal credit score isn’t above a certain threshold (typically about 680).
- Not enough collateral –
All business loans require collateral. Unfortunately not all businesses have sufficient collateral to support the size of the business loan they wish to borrow. Another obstacle is the price depreciation of certain collateral. Know the value of your collateral before you ask the bank for the loan.
- Under-capitalization –
Borrowers often make the mistake of under-capitalizing their business loan application. Your personal and professional resources including fixed assets, retained earnings, and the even an owner’s equity, can be attached if required to secure repayment of the debt. Do your homework; know what capital you have on hand. Know what you can pledge and use to grow your business and repay the bank’s loan.
- Cash flow problems –
Lenders see no reason to offer money to a business that has serious cash flow problems. Banks want to see that businesses have enough money to make monthly loan payments in addition to covering rent, payroll, inventory and other costs. After all, if a business isn’t even making money to begin with, then there is no need to hand it a business loan in the hope that is generates growth. There has to be adequate cash flow available to repay a loan. Most bank term loans are not ideal for start-ups or very young businesses. They typically look for a few years of revenue generation. Start-ups can apply for SBA loans (which are loans made by a bank with a portion guaranteed by the US government). Most large banks have SBA loan departments, so be sure to check with your local branch.
- Lack of preparation –
Many businesses simply aren’t savvy about the application process and believe they can walk into a bank, fill out an application and get approved for a loan. Before applying for a bank loan, businesses should have a written business plan, financial statements or projections, personal and business credit reports, tax returns and bank statements. They should also have copies of relevant legal documents including articles of incorporation, contracts, leases, and any licenses and permits needed to operate.
- Difficult conditions –
Even if a business has excellent collateral, credit, and is well run, there is still the possibility that it will soon face industry-specific difficulties. For example, a lender may be hesitant to lend a business loan to a transportation company in the wake of rising fuel costs. The lender may expect that the soaring costs of fuel are just going to overtax the transportation company and make it difficult to grow or generate a profit. Outside influences are always considered prior to a loan approval or decline. They can include industry experience of a borrower, a business’s location, local or regional economic trends, competitors etc. In addition to these, seemingly unrelated factors, such as local climate conditions, may also influence an applicant’s approval or denial.
These reasons are warning signs to look out for on the road to getting a business loan. Even if borrowers achieve success and borrow business loans, they still have to successfully run their business and payback their lender. While not all ideas need financing to get started, getting a business loan is a great aid to launching a new company.
Many different elements go into starting a new business. One of the primary requirements for setting up a business is to abide by the legal requirements set by federal, state and county rules and regulations. Abiding by these rules allows you to start your business off on the right path to help you avoid legal issues regarding the business structure in the future.
Here is the list of legal aspects you need to consider for start-up. Depending on your situation and type of business, hiring a tax accountant and/or good attorney with specific experience in your industry can help you.
- Business name –
Before you start printing out business cards, make sure the great new name you thought of isn’t infringing on the rights of an already existing business. You can perform a free search online that looks at business names registered with the Secretary of State — that will tell you if the name is available in your state. Then, take your search to the next level and conduct a no-conflict, free trademark search to see if your name is available for use in all 50 states.
- Register a fictitious business name/DBA –
A DBA (Doing Business As) must be filed whenever your company does business under a different name. If you’ve got a sole proprietorship or general partnership, a DBA is needed if your company name is different from your own name. For an LLC or corporation, a DBA must be filed to conduct business using a name that’s different from the official Corporation or LLC name you filed.
- Incorporate Your Business or Form an LLC –
Forming an LLC or corporation is an essential step to protect your personal assets (such as your personal property or your child’s college fund) from any liabilities of the company. Each business structure has its own advantages and disadvantages, depending on your specific circumstances. Three popular options are: the LLC (great for small businesses that want legal protection, but minimal formality), S Corporation (great for small businesses that can qualify), or C Corporation (for companies who plan to seek funding from a VC or go public).
- Get Federal Tax ID Number –
To distinguish your business as a separate legal entity, you’ll need to obtain a Federal Tax Identification Number, also referred to as an Employer Identification Number (EIN). Issued by the IRS, the tax ID number is similar to your personal social security number and allows the IRS to track your company’s transactions. If you’re a sole proprietor, you’re not obligated to get a Tax ID number, but it’s still good practice as you won’t have to provide your personal social security number for business matters.
- Learn about employee laws –
Your legal obligations as an employer begin as soon as you hire your first employee. You should spend time with an employment law professional to fully understand your obligations for these (and other) procedures: federal and state payroll and withholding taxes, self-employment taxes, anti-discrimination laws, OSHA regulations, unemployment insurance, workers’ compensation rules, and wage and hour requirements.
- Obtain business permits and licenses –
Depending on your business type and physical location, you may be required to have one or more business licenses or permits from the state, local or even federal level. Such licenses include: a general business operation license, zoning and land use permits, sales tax license, health department permits, and occupational or professional licenses.
- File for trademark protection –
You’re not actually required by law to register a trademark. Using a name instantly gives you common law rights as an owner, even without formal registration. Since you’ve spent untold hours brainstorming the ideal name, and you’ll be putting even more effort into cultivating name recognition, you should consider registering your trademark for proper legal protection.
- Open a bank account to build business credit –
When you rely on your personal credit to fund your business, your personal mortgage, auto loan and personal credit cards all affect your ability to qualify for a business loan. Using business credit separates your personal activities from that of the business. To begin building your business credit, you should open a bank account in the name of your company, and the account should show a cash flow capable of taking on a business loan.
If you are a start-up owner or have plans of becoming one, we at TheGongzuo.com are eager to assist you. Our experts will provide you guidance regarding your financial or legal matters. Do contact us today!
Starting a new business can be tough, as obstructions you never imagined crop up. Limited time, manpower, and budgets can all be a factor as the workload starts to pile up and the bills come rolling in. With the right tools, small businesses can reach their potential. Below is a list of tools that small business owners can utilize.
1. For organization and productivity –
- Google Drive – lets you store and access your files anywhere–on the web, on your hard drive, or on the go.
- Trello – Visual project management system
- Expensify – financial services startup that provides an online expense management service for customers worldwide.
- Evernote – A suite of software and services that allow users to capture, organize, and find information across multiple platforms.
2. Cloud storage –
- Dropbox – Provides a home for users’ most-important information.
- Google Drive – lets you store and access your files anywhere — on the Web, on your hard drive, or on the go.
- Apple’s iCloud – a mobile- and Web-based application that enables its users to store their information.
- Microsoft OneDrive – A storage application that enables users to store and share photos, videos, documents, and more.
3. CRM tools –
- Salesforce – A global cloud computing company that develops CRM solutions and provides business software on a subscription basis.
- Act! – To organize customer details, increase productivity, and drive results.
- SugarCRM – enables businesses to create extraordinary customer relationships with the most innovative CRM solution in the market.
4. Email marketing/marketing automation –
- MailChimp – an email marketing service that helps businesses with newsletters, automated messages, and targeted campaigns.
- Constant Contact – provides email, social media, and event marketing tools to help small businesses grow their customer base.
- Emfluence – lets you create, deploy, and track multi-channel online marketing campaigns from one place.
- InfusionSoft – provides sales and marketing automation software for small businesses that combines CRM, email marketing, and e-commerce.
5. Social media and content tools –
- TweetDeck – A Twitter tool for real-time tracking, organizing, and engaging on Web and mobile devices.
- Sprout Social – provides a platform for businesses to manage social media engagement, publishing, and analytics.
- Buffer App – helps users share social media content by scheduling online posts throughout the day.
Creativity is the essence of the tech world and it is evident even with the names of tech companies. There is a story behind the names of most of the companies.
Here’s a look how some of these well-known tech giants got their names:
- Apple – Steve Jobs liked apples a lot. The other reason he named his company ‘Apple’ was that “Apple” was ahead of “Atari” in the phonebook and he used to work at Atari.
- Amazon – Bezos wanted his book retail site to be so quick and easy that it seemed like magic. The site went online in 1995 with the name of Amazon, taken from the Amazon River for being the biggest river. Clearly, Bezos had big ambitions right from the start.
- Google – Google took its name from a deliberate misspelling of Googol, the word that represents 10^100, or a 1 followed by 100 zeroes. Why this? Simply because founders Sergey Brin and Larry Page wanted to convey the huge amount of data they intended to make available.
- Microsoft – The company was officially established in April 1975, with the name coming from a combination of “microprocessor” and “software” – which is fitting given that they were creating software for the Micro Instrumentation and Telemetry Systems’s (MITS) Altair 8800.
- Oracle – This name started as the code for a project that co-founders Larry Ellison and Bob Oats worked on for the CIA. It was a database that was supposed to be able to answer any question about anything.
- Mozilla – In 1994, when a team at Netscape sat around to think of names for a new browser to take on NCSA’s Mosaic browser, what they were looking for was something that would crush the competition. What they looked to was Godzilla. Combining Mosaic with the movie monster brings you to the current day name of Mozilla.
- Asus – The name is derived from the mythological Greek winged horse Pegasus. According to the company’s own explanation it embodies the strength, purity, and adventurous spirit of this fantastic creature, and soars to new heights with each new product it creates.
- Lenovo – The word is a combination of Le and Novo, meaning new in Latin.
- Skype – It’s a combination of “sky” and “peer-to-peer”, shortened to skyper. The name ‘Skyper’ was already in use, so the new name became ‘Skype’.
- Twitter – Founders first thought of ‘twitch’. But ‘twitch’ was not a good product name because it doesn’t bring up the right imagery. So, they looked up dictionary and found ‘twitter’. The definition was ‘a short burst of inconsequential information,’ and ‘chirps from birds.’ And that’s exactly what the product was.
- eBay – The website started out as “AuctionWeb,” a part of the personal website of former Apple software engineer Pierre Omidyar. The website took off, and Mr. Omidyar decided to spin it off into its own entity and name it afterhis consulting firm, Echo Bay Technology Group. When the domain name echobay.com was taken, he switched it to ebay.com.
- Verizon – According to Verizon’s corporate history, the name is a combination of the Latin words “veritas” and “horizon.” Veritas refers to truth and reliability, while horizon signifies forward-looking and visionary.
- Blackberry – This name was coined in 1999 because the keys on the device resembled the drupelets on the fruit.
When we think of tech start-ups, Northern California region comes to our mind. Companies in Silicon Valley area receive the largest share of funding from venture capitalists, but there are several other promising cities around the country to launch tech start-up.
The following ranking is based on start-up survival rates, available talent pool, day-to-day start-up costs etc.
- Austin, TX – Austin has topped the list, becoming alternative to Silicon Valley. It has a smaller population and that is great for quality of life. It has the necessary talent available needed for tech industry.
- New York, NY – This is city is very much open for business. Internet businesses are thriving in Manhattan. NYC’s mass transit system is a big plus in its digital success.
- Seattle, WA – Seattle has great universities producing engineering and IT graduates. So, it has the highest density of tech talent. This is the biggest advantage for entrepreneurs.
- Denver, CO – It has comparatively low office rents, affordable for budding CEOs and CFOs. It has smaller population, so people enjoy great quality of life.
- Atlanta, GA – It has great public transport and subway system for commuters. Low cost of office spaces is good news for start-up owners. They get more money in hand to expand their business or to hire quality workforce.
- San Francisco, CA – Here, over half of the population holds a Bachelor’s degree. This is fantastic as it means there is a good spread of academic qualification and experience throughout the city to aid recruitment. Major downside is, it is the costliest place to open a new office.
- Washington, D.C. – Academic talent pool is larger than most of the cities. This is fantastic news for anyone looking for a more academically qualified workforce, or looking for specific qualifications that come out of advanced degrees.
- Miami, FL – Miami has one of the most thriving local business cultures of the entire Top 10 cities of this list. It can attract many different businesses from different sectors. It can attract many different businesses from different sectors. Miami is blazing ahead in terms of number of new company formations.
- Los Angeles, CA – It has second lowest transportation cost among the top cities listed here – good news for employees needing to get to their workplaces and the bosses who need to get them there early. LA is great place to start and grow business. It has a high rate of new entrepreneurs.
- Houston, TX – Houston is the best city in terms of office prices. Being highly populated, it gives great local market for businesses. It has a wide variety of skills available, which is a big plus.
Launching a business without a plan is like going on a road trip without a map or GPS to guide you. Whatever may be the type of your start-up business, you have to have a business plan in place. Its real value lies in the process of researching and thinking about your business in a systematic way. Another advantage of having a start-up plan is that, you can present it to the investors to give them a clear idea about your business.
Start-up plan is nothing but the “to-do” list of everything to start your business. Once you list out the actions that need to be taken, assign a responsible person for every action and write down the deadline by which it needs to be completed. Any task without a deadline will never get completed.
Review the following steps to write your start-up plan:
- Mission statement – This is your reason for starting your business. Maybe you want to provide a specific service that’s missing in your community. Your mission statement should explain your reasoning in a few clear and effective sentences.
- Your own background and information – Add a section about yourself, mentioning your qualifications and experience.
- Employees’ information – List the names of your employees, if you have already identified them or else you may write the titles, job descriptions, the responsibilities they would be handling etc. You may also include the salaries and benefits you are planning to offer to your staff.
- Market study – This includes the description of market that you are targeting. It includes either the geographical locations or people of particular age groups.
- Competitors – Besides their name and business type, note a brief reasoning as to why each business is considered competition. End with why your business will overcome the competition and be successful.
- Partners – These would be the distributors, vendors and contractors that you may need to hire as part of your business.
- Description of your product/service – Be specific about how you plan on producing or providing the product or service, and how you will deliver it. You will also need to explain the methods you will be using to sell the product or service and what modes of marketing your will implement.
- Financial section – This includes information about your credit status, sources of funds, business expenses and projected sales and profits.
It typically takes several weeks to complete a good plan. Most of that time is spent in research and re-thinking your ideas and assumptions. Be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data.
If you need any help in launching your business, register at TheGongzuo.com for free. We have mentors and advisors to help you in every single task – from building your start-up plan to market your product/service.