Small Business Loan Basics
by Joseph Kenny
Published on this site: December 16th, 2005 - See
more articles from this month
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.
Joseph Kenny is the webmaster of the loan information
sites http://www.selectloans.co.uk/
and also http://www.ukpersonalloanstore.co.uk.
At the Personal Loan Store you can find all the different
loan types explained.
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