In order to start a business you must be able to find a lender that will offer you small business financing. Small businesses are typically seen as a risky investment, which can cause a lot of lenders to shy away from lending you the money. In order to help you find the right type of small business financing you need, here are some of the options that are available.
Traditional bank loans
If you have worked with your local bank in the past for your personal loans, they may be able to provide you with small business financing. This is because they will be able to pull your personal credit rating and other information in order to determine how you have managed your personal finances and if you will be able to manage the business finances responsibly. A traditional lender doesn't like to take on the risk like online lenders and investors so come prepared to do a lot of convincing to the lender. The downside to bank loans is that they always want some type of collateral for the loan. They will come after your personal assets if you default on the loan and they are not very forgiving with high interest rate penalties if you are late with a payment. Shop around as every lender has different lending restrictions and you may be able to find one that will actually give you a loan.
Government loans and grants
Another option you have for small business financing is to look for government grants and loans. The Small Business Administration provides financing for a number of small businesses that may be turned down by traditional lenders. If you meet their qualifications, you will be able to use the money to pay for the start up or expansion of your small business. Generally they do require that you apply for traditional loans before you apply for an SBA Loan. They will also ask you to front a 20% down payment or more in order to reduce their risk and push you to become a successful small business owner. The downside to working with government loans and grants is how long you have to wait to get an answer. Unfortunately the government is notorious for dragging their feet and it can be 18 months before you hear anything from them. The upside is that if you are lucky enough to qualify for the loan, you will have lower interest rates and a longer repayment term.
Investors
One option many people turn to for small business financing is investors. Do you know some wealthy friends or family members that may invest in your business? Don't be afraid to ask people for money because you need it in order to generate working capital and improve your business credit rating so you can acquire other loans in the future. While this may be your last option when seeking financing, it may be the only option you really have in order to get your business started. Depending upon the type of investor you work with, they may have some authority and control over how the business is run. Be prepared to hand over a little control to them. The other thing to be careful about is the repayment terms. If your family provides you with funding, you'd better repay it as soon as possible to avoid damaging relationships with them. Draw up a contract with anyone that invests in your business even if it is $1,000 or less. You must be able to show them how much interest money they will earn and how soon you can repay the loan. You need this documentation to avoid problems with the IRS as well.
Corporate Credit Concepts specializes in small business financing. For more information about small business financing and how it might benefit your business, please CLICK HERE for a free phone consultation.