Determining Actual Loan Needs & Costs

 
Whether your business is just starting up, or has been in operation for years and is seeking more financing, the most important part of getting a loan is often the most overlooked aspect of it: How much should you get? This is important for a multitude of reasons that one could think of for hours on end, but some of the most important reasons you'll have to determine how much money your business needs are:
 
1. Most obviously, so you can tell your bank how much you want. Your lender will be reluctant to give you money if they ask you how much your business needs, and you tell them you don't know.
 
2. So that you aren't over-extended. Your business does not need $50,000 when $10,000 will do - you may get overzealous with that much extra money and make bad investments. Getting the correct amount helps you stick to your business plan instead of forming a new on the fly.
 
3. You are more likely to get approved for smaller amounts that larger amounts. You may initially think your business does, in fact, need $50,000 to start up, but if you really analyze your plan and determine that $10,000 is enough, you have a much better chance of being approved for your loan.
 
An article at Entrepreneuer.com says that there are eight places to explore when determining how much money your business will need when you apply for financing. Some of these may apply to your business, and some may not. For example, you may not need to look at "Business start-up guides," since you may already be receiving assistance from someone on running your business; however, if you pay that person a fee, you may want to take that in to account as a business expense. The "Franchise organizations" aspect may not apply to you, either, as your business may be your own, and not a pre-packaged deal, such as a fast-food business. 

Aspects that will apply to you include "People in the business" and "Sources of supplies." When referring to "People in the business," the article is emphasizing people who are in a similar business to your own who may be able to provide insight and information as to the costs of doing business. These people may have gotten more money than they needed in a loan, or less. Asking them and learning from their mistakes may be one of the most valuable resources you have available. 

"Sources of supplies" are simply your potential supplies. Research them, finds the ones that work best for you in terms of costs, shipping/delivery, quantity, etc. This will go far to help you decide how much you need, as it will help you pinpoint your single greatest expense in starting up: Purchasing supplies to make or sell your product or service. For example, a roofer can't start his business without singles, nails and tools. If he knows how much it will cost him to buy one roof worth of singles and nails, and how much his tools and trucks will cost, it's only a matter of figuring out some other, more minor costs for him to determine how much his loan should cover.