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Many people who
wish to start their own business need an injection of
financial capital at the beginning of a business; the main
source of funding for entrepreneurs is business loans.
Let's take a
look at what you should expect if you plan to apply for one.
First of all,
you should know that most lenders have their doubts when it
comes to lending money to a first-time business owner.
You're considered a high business risk at this point, and
you should go in to your loan negotiations armed with a few
advantages. Of course, the ideal option is to run your
business for a few years, even just out of your home, and
turn a good profit before approaching a bank for a loan.
That shows that
you have the ability to make money and that your business
won't flop before the Open sign shows up on the door. But if
this isn't possible, if you need the cash before you can
begin at all, then chances are you will need to offer some
type of collateral. Collateral can be anything from your car
to your home and everything in between. Depending on the
size of the loan, you may require some pretty hard assets
for collateral. The lender is not interested in whether or
not your business will make money, aside from the extent
that will allow you to pay them back on time. They simply
don't want to lose out on the loan, and so you'll have to
find some way to back yourself up.
Backing up your
loan with assets, if you have them, is a good route -
provided you have enough confidence in your financial
situation to ensure you are not going to lose your
collateral. If you don't have enough assets to stand in for
your loan, another option is to find a cosigner. Chances are
you won't get as much cash as you would if you had the
assets. But having someone with good credit who is willing
to sign onto your loan and promise to pay if you don't can
be the factor that gets you through the door. This is a good
way for friends and family who believe in your business to
help you get it off the ground, even if they don't have the
money to loan you up front.
When it's time
to borrow, do some comparison-shopping among banks and
credit associations, and don't stop until you find the
lowest interest rate possible. You're already gambling a lot
here- minimize the amount you will have to pay back by doing
your homework and choosing the company that offers you the
best deal. If you can't get enough to cover your beginning
business expenses, consider borrowing part of the cash from
a friend or relative if you can, or even asking for
investors, such as customers who believe in your business,
to help out. Don't accept a high-rate, high-risk business
loan just because it offers you the biggest amount.
The small
business loan: The first step in a long chain of financial
events. If you take the right step, it could be your leap
into the business world. |
