Of all the loans, the most difficult thing is to get a loan to create and promote a small business. Individual entrepreneurs (hereinafter referred to as IP) and private individuals conducting their business are included in the category of clients that banks have the least trust in. A loan for small business development from scratch is really hard to get. And this situation is explained quite simply. If, when taking a mortgage on an apartment, you need to convince the bank that you have a stable average income, which will definitely not disappear in the next eight years, then with a small business everything is much more complicated. This is where the potential return, profitability, reliability, and survival of this business in a shaky Russian economy act as a guarantee of the return to the bank of funds. The only additional guarantee is the pledge of some valuable property of the borrower.
Even in developed countries (USA, Western Europe) economists give a maximum of 20% to the next small business project. This is the likelihood that the business will survive and not burn. And in the Russian Federation, this indicator is 2-3 times less for a whole complex of reasons. That banks and are not eager to give money to people who then, very possibly, become bankrupt. However, there are certain schemes of interaction with credit organizations for beginning businessmen. We will consider them.
Step-by-step instructions for obtaining a business loan from scratch
As an example, it is worth exploring proposals from the main and largest Russian bank in the civilian market. It’s about Sberbank. He works with all types of business clients – IP, PE (private entrepreneur), CJSC, LLC. However, before you go to the bank, you should prepare in advance for the three main points, without which it is almost impossible to get a loan to start a business from scratch.
- Preparation of a business plan. A beginner entrepreneur must create his own plan, project. This is the beginning of any business. By the way, regardless of the level (small, medium, large). A businessman or businesswoman determines the main tactical (short-term) and strategic (long-term) directions of development of the future firm. A quantitative (technological, production) and qualitative (complication of the structure of the enterprise, advanced training of employees) analysis is carried out. Production volumes, the ratio of potential costs and profits are calculated, and the market situation of the market sector in which the business will operate is analyzed. Also analyzed the staff. A business plan shows investors whether to invest in this business. And the bank as well.
- Definition of a franchise. If the future IP comes to the bank and says that it wants to open its independent enterprise, which will be called this, it will most likely be denied a loan. A franchise is a brand, it is a type of licensing, it is a specific model for running a business. For example, the franchise is the McDonalds network. Or Coca-Cola. Or Microsoft. But such franchises are worth billions, because the business under their auspices guarantees a corresponding profit. A novice entrepreneur has to choose from a list of much more affordable options. Moreover, it is desirable that franchise companies are associated partners of the bank where the client is going to take a loan. In Sberbank, this is Harat’s and a number of other companies selling relatively inexpensive franchises.
- And, of course, you should not go to the bank, as they say, “Golyak”, without the possibility of collateral. Of course, it happens that the future of individual entrepreneurs has nothing for their soul but a business plan and a desire to start work as soon as possible. But as already mentioned, financial institutions are extremely cautious in giving out money to small businesses. It is great when the client has some kind of real estate owned or other valuable property (cars of the average price category, for example). Then you can arrange this property as a pledge. The institution will know that in the event of a business failure, all or most of the money issued will be returned back through the realization of the client’s pledged property. Those who have nothing will at least have to find funds for a down payment, which is high in business lending (almost always at least 30%).
So, the preparation is complete. We go to the Savings Bank. Here the procedure is as follows:
- Completion of the questionnaire, where, in addition to the basic information, there is a desire to take a loan for individual entrepreneurs from scratch
- Choosing a credit program. It is necessary to choose a special program “Business Start”.
- Registration with the tax office as an individual entrepreneur.
- Collect all necessary documentation. Here you will need not only a standard set of individuals (passport, TIN, income certificate 2-NDFL, military ID for men under the age of 27 years, a pension certificate), but also additional documents related to business lending (business plan, IP certificate or another form of organization, a letter from the franchisor of cooperation, certificate of possession of some valuable property that can be used as collateral).
- Submission of a direct application for a loan for the creation and development of small business.
- Provision of cash to the bank in repayment of the initial payment (or registration of expensive property as a pledge).
- Getting the money you want and starting your own business.
Of course, there may be some abnormal situations, additional requirements. Thus, a franchise company, which is a partner of a bank, may request additional detailed analysis of the market sector in which the client is going to work. If the future business requires additional licenses, they must be obtained before issuing a loan. For example, if a person is going to sell alcohol, hunting and traumatic weapons. Therefore, only general, standard instruction is presented here. The conditions under which Sberbank issues loans for small businesses are medium and quite acceptable against the background of offers from other banks:
- annual interest – 18.5% (in other institutions this mark can go up to 25%);
- the minimum down payment is 20%, but it’s better to settle for 30% (in other institutions it can reach up to 50%);
- if the client has purchased a franchise from Harat’s, then he can be given up to 7 million rubles. In other cases – up to 3 million rubles. The minimum loan is 100 thousand rubles;
- a loan is issued for a period of up to 5 years (for users of Harat’s business model) or up to 3.5 years (for all others);
- The allowable delay in monthly payments for Harat’s customers is a year, and for all others – six months.
Here it is worth considering not the minimum, but the maximum requirements. Such at which chance to receive the credit raises to 90%. Sberbank requests are standard. Similar conditions for novice businessmen will be put forward by any other bank:
- clearly structured, voluminous and as informative as possible business plan;
- certificate of income in the form 2-NDFL;
- possession of some valuable property suitable for pledge;
- having an account in another bank, owning shares and other securities (extract from the bank, from the register of shareholders). This is an analogue of the pledge;
- good credit history (availability of any other loans repaid on time). At the same time, the presence of an outstanding loan, which the client pays, is not a plus, because this is an additional financial burden;
- the presence of co-borrowers (business partners) or guarantors who have proven their financial viability to the bank;
- the client does not just have a permanent residence permit, but also intends to open a case at the place of residence and location of the creditor bank. For example, in the same city where the Sberbank branch and home address of the borrower are located;
- client age varies in the range of 27–45 years. Why exactly 27 years old? The answer is military duty, not pleasing the banks;
- for some reason, family people are statistically more trusted. Although the family, logically, can be a distraction from the business factor. Probably, banks believe that the family man is a priori more responsible;
- the absence of any debts (for other loans, utility payments);
- Information about the main monthly expenses of the client (utility payments, other loans, alimony, rent, etc.);
- lack of criminal convictions (especially outstanding, serious and financial crimes);
- certificate confirming that the borrower did not stand and is not registered in a psychiatric and / or narcological dispensaries.
It is not necessary to strictly comply with all factors. Yes, such borrowers practically do not happen in nature. Just here described the “gold standard” ideal. Some factors are not of particular importance (marital status), and some are of paramount importance (security, business project, lack of crime and problems with mental health / drugs).
It is worth mentioning that if the borrower has already had his own business and now wants to take a new loan for a new business, then this will go to his disadvantage. As the bank always considers the unsuccessful entrepreneurial experience from a negative point of view. And where is the guarantee that this IP of its new initiatives in the same way will not fail?
Factors affecting the bank’s decision to issue a loan
In principle, after reading all of the above, we can clearly see those moments on which a positive decision of the beneficiary directly depends. To summarize, there will be only three main factors: a prospective and well-designed business plan, the availability of a suitable franchise and a certain financial level of the client. If all three points will be rated perfectly by the bank, this will bring the borrower close to the much needed credit. It is useful to know that in the business lending system, banks are working according to plan. That is, the analysis of the client is made on the pattern worked out. And there are two such patterns.
No. 1. Credit officers monitor the borrower and render a verdict (about the client’s solvency and the degree of risk for the bank).
No. 2. A statistical, automated scoring system based on the use of mathematical methods is used. Under this system, all borrowers are sorted into groups, each of which is characterized by a certain degree of risk.
Sometimes the bank resorts to both versions of the analysis.
Other ways to get a loan
It may well be that the bank refused to issue a loan. But the situation is not entirely hopeless. What are there workarounds?
Consumer credit. Plus the fact that it is much easier to get it. And it is issued in any bank. The main disadvantage is the relatively small amount that constitutes consumer credit. This money may just not be enough to start a business. Is that the client will try to take several consumer loans in different banks. But, after all, banks check whether a person has other unpaid loans. However, there are exceptions and banks that do not check the CI, there are also.
If the future PI has a very promising plan in its hands, in which all conclusions are based on comprehensive mathematical calculations, then you can try to contact one of the special centers aimed at supporting small business . If local specialists like the client’s business plan, they can finance it. Approximately the same is done by state and private funds for the development of small business. In any case, there is all hope for a business plan.
Finally, an aspiring entrepreneur may try to become a partner of some large company. Thus, he will actually receive financial support and patronage from a strong market participant. But how to do this is the topic of a separate article. It is difficult to do without connections in financial circles.
This material is intended to help all those who are going to start a business from scratch. It is especially useful to those who have nothing to offer as a pledge. The article reviewed the basic patterns of interaction between potential entrepreneurs and banks.