Learn2succeed.com Incorporated - Bank Financing for Beginners: How to Borrow Money to Grow Your Business

ISBN: 978-1-55270-469-1

Written by:

Learn2succeed.com Incorporated

Published in Canada by:

Productive Publications, P.O. Box 7200

Station A, Toronto, ON. M5W 1X8

Phone: (416) 483-0634 Fax: (416) 322-7434

Canadian Web Site: www.ProductivePublications.ca

American Web Site: www.ProductivePublications.com

Front Cover Art:

Spider web adapted from copyright free clip art from Corel Gallery 200,000

Corel Corporation, 1600 Carling Ave.

Ottawa, Ont. K1Z 8R7

Copyright 2012 by Learn2succeed.com Incorporated

Library and Archives Canada Cataloguing in Publication

Bank financing for beginners [electronic resource] : how to borrow money to grow your business / by Learn2succeed.com Incorporated.

Electronic monograph.

Issued also in print format.

ISBN 978-1-55270-469-1 (EPUB)

1. Bank loans. 2. Commercial loans. 3. Banks and banking.

4. Business enterprises--Finance. I. Learn2succeed.com Inc

HG1641.B35 2012 658.15'224 C2012-903556-4

All rights reserved. No part of this publication may be reproduced, stored in retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without written permission of the author.

Bank Financing for Beginners

How to Borrow Money to Grow Your Business

Credit conditions may be tight, but this book should increase your chances of securing a bank loan for your business. It starts by supplying some background on banking and on showing you the different kinds of banks; how they operate and what kind of loans they offer. It also covers some of the government loan initiatives in the US, Canada and the UK.

To even stand a chance of getting a loan, you will need to prepare yourself in advance. This book will draw your attention to some of the preparations you will need to take before approaching your banker. It also suggests that preparing a business plan could greatly assist you in securing a loan.

Youll get a tour behind your bankers desk and get a view of what is seen from the other side.

You will be shown how to finance your accounts receivable from factors. You will also learn how to finance exports and imports.

Finally, this book tries to put into context, the whole financial mess that we have just endured and how attempts are being made to bring the big banks back to heel. Hopefully, these government and regulatory actions will create a more sane environment in which small businesses can get better access to loan financing in the future.

This book should definitely be on your reading list before you go charging into you bank in search of a business loan.

No representation is made with respect to the accuracy or completeness of the contents of this book and both the author and the publisher specifically disclaim any implied warranties of merchantability or fitness for any particular purpose and in no event shall either be liable for any loss of profit or any other commercial damage, including but not limiting to special, incidental, consequential or other damages.

Debt financing does not require you to give up any of the ownership in your business and for that reason, many entrepreneurs prefer it as a form of financing. In general, youll find it easier to obtain than equity financing.

Having said this, youll find that debt financing is not a panacea. It has costs attached to it, aside from the obvious interest payments that you have to make. You may find collateral requirements to be quite onerous which can ultimately make lending a very, very expensive proposition for you.

You may find that factoring is a less costly alternative, however, this is a technique largely confined to the textile and clothing trades. Ill examine it in detail later in this book.

Before I dive into the nitty-gritty of bank financing, Ill provide some background which should help to provide you with some overall understanding of how the banking system works. First, I will cover the history of banking, how it developed and also how it very nearly collapsed a few years ago.

Banking has been around for more than 6,000 years. There is evidence that merchants in the ancient Middle Eastern states of Babylonia and Assyria made loans to farmers to enable them to purchase seeds and grow their crops. They also loaned money to traders so they could purchase the crops which the farmers produced and transport them to market.

The first deposit accepting banks didnt appear until ancient Greek and Roman times.

Of course, before you can have banks, you have to have a means of exchange. Initially, money was in the form of grain or cattle. Indeed, cattle were still being used as currency until very recently by some nomadic tribes such as the Masai in East Africa, but its difficult to carry a goat around in your pocketbook and more practical means of exchange have evolved. I certainly dont find a corral of cattle behind my bank managers desk! A more practical alternative emerged!

According to the National Mining Association, gold was first used as a currency around 1500 BC when the people in Nubia, in modern-day Egypt, began using gold as a medium for international trade.

Around the same time, a coin made of about 2/3 gold and 1/3 silver made its appearance in the Middle East. This was known as the Shekel.

In 1091 BC, gold in the form of small square coins, was legalized as a form of money in China.

The first coins of pure gold were made in the ancient Kingdom of Lydia, located in Asia Minor. That was about 610 BC.

In the year 50 BC the Romans began issuing gold coins called the Aureus.

Jump many centuries later and in 1284 AD, Venice (at that time a major maritime trading power), issued the gold Ducat. The English, not to be outdone, issued the Florin; their first gold coin, in the same year.

Indeed, Modern Banking came of age during the Italian Renaissance and then spread rapidly throughout the maritime trading powers of Europe.

I find it very interesting that in early Judaism, the charging of interest on loans between members of the Jewish faith was forbidden; although interest on loans to those outside of the faith was considered legal. Indeed, in early Christianity usury as it was called, was also banned although it became acceptable over time and if youve ever paid interest on an outstanding credit card balance, youll certainly know that usury is alive and well in our modern society!

The Quran prohibits the charging of interest on money loaned in the Islamic faith and this is still adhered to this very day, and has led to a whole specialized branch of Islamic banking in which a mark-up profit as well as fees are added to financial facilities offered to customers.

When I was researching for this book, I tried, without success, to find an all encompassing figure that would give you an idea of the size of the worlds commercial banking system, but all I can tell you is that worldwide bank assets run into the hundreds of trillions of dollars.

Size is one thing, but what is very worrying is that the world of banking has become very interconnected and trouble in one area can very quickly spread to other areas, as contagion spreads fear throughout the financial system.