Small business entrepreneurs often look at bank loans to start up a new business as they offer less risk than using their own money or having to sell off assets such as a home. As long as you have a solid business plan and a good reputation, you eventually will find a lending institution to provide you with start-up capital. If a private bank won't offer you money, alternative sources of financing exist.
You do not
have to focus your search for a small business start-up loan only on
banks. Several large companies are now in the business of lending.
According to Mike Tracy of Business.com, General Electric lends about
$10 billion each year to entrepreneurs. You might even forgo a loan
entirely if you qualify for a small business grant from the Small
Business Administration (SBA).
Finding a Loan
Applying for a LoanTo qualify for a start-up loan, the bank wants to know everything possible about your personal history and your potential business, the SBA explains. A typical loan application asks for basic information about your business, such as the structure of the company, why you need a loan instead of personal finances and how you plan to use your capital. In addition, you should show an excellent credit score, business experience, collateral and any licenses required to run a business in your area to prove you are responsible.
ConsiderationsIn general, banks are more cautious with their money--especially when dealing with new business owners--than private investors or investment firms because banks have to keep in mind that they are lending money that belongs to their account holders, notes D&B Small Business Solutions. In addition, banks are more likely to give out small loans (less than $200,000) than fund large ventures.
Credit CrisisThe 2008 credit crisis has made it more difficult for small businesses to get a start-up loan than in previous years, according to Lydia Dishman of Entrepreneur.com. In 2009, for example, the U.S. Small Business Administration reduced its lending to small businesses by 36 percent over the previous year. This means entrepreneurs must put more effort into laying out a profitable business plan and looking for funding to ensure they get start-up capital.
TipYou can improve your chances at receiving a small business loan by increasing the stake you have in your new venture, according to the SBA. This means increasing the collateral you put up for the loan and decreasing your debt obligations. Entrepreneur.com recommends that investors create an honest business plan. Investors are aware of the inflated numbers loan-seekers usually give them. Thus, you should give investors a sensible expected return rather than a far-fetched scenario for your future company.
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