Business start-up loans are hard to get
It’s no secret, and it shouldn’t surprise most, it’s relatively difficult to obtain business financing for a start-up, specifically obtaining a conventional bank loan. These financial institutions are in the business of making money…not losing it based on a ‘hunch’ or an unproven business. So if you are starting or at least thinking about starting a business, how can you solve this problem of getting a business loan from a conventional bank? Here’s the key: Don’t be a start-up business. Easy to say, but not hard to achieve if you practice discipline and commitment.

The main reasons why companies do not get financing are:

• lack of concept
• Lack of market testing
• low profit margins
• Lack of business and/or personal assets as collateral

Today, we will go over the lack of market test.

How to get proof of market
It is difficult to produce and sell products and services in a market that does not exist or is too small. Startups do not take into account the size and profitability of the market they intend to serve. Due to the many options that are made available to would-be startups through social media and other online platforms like Google or Yahoo, it’s relatively easy to figure out the market potential of a business. The recommendation is to apply the MVP or “minimum viable product” principle which means that you take a simple prototype of your main product and/or service offering and quickly bring it to the target market. The purpose of doing this is to get quick feedback for necessary revisions and proof that the market exists. Also, to really get a feel for the market, go outside and ask potential customers. Identify multiple suspects for your product and/or service offering and contact them via phone call, direct mail survey, or in-person visit. The main purpose of these activities is to get feedback and eventually a sale if it is mutually beneficial.

From what I’ve observed over the last decade working with and watching startups, it takes 12-18 months to really gain traction in a market. Please do not confuse this with testing the startup idea in the market. This should be noticed quickly and should not take more than 30 days. In other words, if your MVP isn’t getting enough feedback and ultimately sales, then either abort the mission or revise/retest.

How do you strengthen your case for market-tested trade finance? Once you have proof of the market for your business through sales and proof of cash received through business bank statements, include these documents in your business financing package. Show how the business loan will enhance the ability to gain greater market share or increase profit margins through business growth.