Loan from a bank
A loan from a bank is an agreed amount of borrowed money that needs to be paid back in a fixed period of time with interest. To borrow money from a bank, a detailed business plan is needed. For start-up finance, the maximum loan is often not more than 50% of the required sum. Interest rates at the moment are 6-7 percent.
Loan from a supplier
Breweries are likely to supply loans to start-up entrepreneurs. In the loan contract the brewery can oblige Mr. Miyako to only use the beer and soft drinks supplied by the brewery. Loan can be in cash, but also in the form of a new beer pump installation, or advertising signs. Depending on the relation with the brewery, 20-30% of the required sum can be obtained from suppliers.
Overdraft
An overdraft can be a good way of achieving some extra pre-agreed money from a bank, for example if Mr. Miyako over-spent slightly he would still be able to keep afloat until he is able to obtain some more money. However this needs to be paid back within a given amount of time, for example a month. The rent is often very low, for example 0,5-1,5% each month.
Advantages and disadvantages
Private family funds
Borrowing money from family or friends is often without paying interest. This is of course the best way of obtaining money. The period of payback is often very long. But, it is always important to make good agreements. This to prevent problems later when there is an argument between family or friends.
Loan from a bank (long term loan)
When you get a loan from a bank, you are likely to open a business account there. This is a good opportunity to get related to the bank. When business is going well, the bank can notice that from the balance of the account. Should you need more funds, then it is easier to contact a related bank. The disadvantage is that interest need to be paid. Interest of business are often higher than private loans. Interest can be deducted from the tax.
Overdraft (short term loan)
The advantage is that when extra money is needed to buy something.
The disadvantage is that a loan from the bank need to paid back in a short period of time.
COMPARI ICE
Character
Does your background, financial acumen - personal and business - and personality inspire confidence? Have you the experience and determination to make your plans a reality? This one weighs a lot with lenders.
Ability
Basically, what's the chance of you repaying the bank's money? Can you cope if the going gets tough? The skills and abilities of the owners is key here. Existing and projected profitability, capital requirements and most of all cashflow are also key indicators.
Means
Do you have the means and resources to run the business. Can you provide regular summaries of how the business is doing? What are your assets - personal and business?
Purpose
Why do you need to borrow in the first place? If it's to give yourself a fat cat salary, forget it. Also, a last ditch attempt to stem losses is a non-starter. If it's a plausible start-up, planned expansion or to launch a cash-generating initiative such as a marketing campaign, then you have their attention.
Amount
Ask for enough money, allowing for a margin of error in your forecasts. But don't ask for more than you need, you'll just pay more interest. If you haven't asked for enough and you come back for an emergency fix, the bank will have the drains up to see what's gone wrong. Putting your own money in reduces the lender's risk and shows commitment.
Repayment
Prove that you are able to repay the money with a realistic cash flow forecast.
Insurance
The bank will probably ask for security - which is negotiable - and ask you to consider insurance cover for both your business and yourself - which is prudent.
And ICE stands for Interest Commission and Extras. Couldn’t find any explanation on ICE.
Conclusion
The entrepreneur decide to open a Japanese restaurant in Sheffield.
He has loan money from the bank and from private sources.
To pay off his first year cost. I am going to number down the steps how the entrepreneur should follow.
1 Entrepreneur finds a suitable place to start a business.
2 Entrepreneur found a suitable shop, and need money to rent it.
3 After renting the shop, decoration is needed. Can hire someone to do it or do it on his own to safe money. Than sum up the estimated cost for everything that is required for the shop.
4 Calculating the cost, since 10% are owners equity(internal). There is 90% money required from other sources(external).
5 Borrowing money from the bank to pay most installation cost(Expensive Production Machines). E.g.: bar, car etc.
To use overdraft pay off small cost like gross cost. Use profit to pay it back.
6 Get ready to open his shop soon now. Needs employee. Insurance, advertisement etc.
7 Welcome to Mikayo’s restaurant!
Bibliography
New First Certificate Masterclass Oxford university press.
Marguerite Corporaal, Wim Gerritsen, Marjolein Hinfelaar, Anne Kamerbeek, Job Smets, Arnoud Thuss, Bart Visscher, Jos Wolkers (1998) Dealing with English.
Alan Stanton, Mary Stephens (2001) Fast Track to FCE.
S.A. Pasieka Business Economics.
Internet:
http://www.Kvk.nl
References:
Bank, family, friends, internet
