Small Business Loans
It is common for most of those who wish to start their own small business to require some financial assistance. Rarely does a person have the required capital available to meet the initial needs involved in launching a start-up company. Unless you are in the fortunate position to be able to bear the vast number of expenses your small business will entail before it begins to generate a stable stream of revenue, you will likely need to obtain capital for your business venture. Small business loans are the leading source of funding for many entrepreneurs, and have the highest success rate.
Business loans today are tailored to be large or small based on your business’s needs. This article is designed to provide an short guide to the small business loan options that are available, as well as to prepare you for what you can expect when making your plans to apply for one.
We will begin with the basics. You should be aware that lenders almost universally will be hesitant when it comes to lending large amounts of financial assistance to someone who is new to the business world. What is the reason for this? As an inexperienced professional in your first foray into business, the lender may see you as a risk. The possibility exists that your business planning might not meet expectations, and that the lender may never see a repayment or return on their investment. At least, not in the most preferable way. For this reason, be aware that you will automatically be considered a high risk business venture, and prepare yourself to negotiate your business terms with few advantages on your side. The best option you could have is to start and successfully run your business for a few years, then approach the bank for a loan when you are ready to expand.
What this approach clearly demonstrates is that your business has the proven ability to produce revenue and has an established track record of stability and success. However, if this was a viable option for your business, you would likely have little need to be reading this article. Since you wish to launch your own business and are in need of the liquid capital to do so, be prepared to offer something valuable you own to the bank as collateral for a loan. Your collateral could be anything of great value you possess. This can include your home, your car, or anything of high monetary worth. What will be required of you will mostly depend on the amount of the loan you are requesting. You cannot expect something small like a refrigerator or a computer to be seen as an acceptable guarantee for a $10,000 loan. Based on your desired loan amount, some hard valuable assets may be required for proper collateral consideration.
The lender sitting before you has no interest whatsoever in the eventual success of your business. It does not matter to them if you make money, or if you are forced to pay more than you initially invested. Their bottom line will always be whether or not you will have the ability to repay the loan in a timely manner. They will never want to lose money on a loan they give, leaving the responsibility with you to have a backup for both your business and your personal finances.
I you have the confidence in the viability of your business, your ability to make it a successful enterprise, and your ability to pay back the loan and keep your collateral, this type of loan is a suitable option for you. However, if you do not possess the collateral-worthy assets required, then you must consider the second option: enlisting the aid of a stable co-signer. It is likely that you will not be eligible for the amount of money you would if you had assets to offer, but having a willing co-signer with a good credit history is a great benefit in qualifying you. By signing onto your loan, they promise to assume responsibility for paying the loan in the event that you cannot do so yourself. While your credit-worthy friends and family may not have the spare capital to loan to you up front, this is a great way for them to be supportive of your venture and show their faith in you and your business skills. The three things to remember when researching for your loan: find, compare, and choose.
The massive importance of researching to find the right deal cannot be highlighted enough. Do your homework thoroughly when you are seeking the right lender to borrow from, Get multiple quotes from a range of different bankers, and sift through them to find the deal with the best terms. Just by virtue of starting your own business, you are putting much at risk. Try not to overextend yourself before you have even started. Don’t be charmed by the more lavish options; stick with what you need and only what you need to get your business through the initial phases. Heavily weigh the pros and cons to find the options that best suits your financial picture. Pick and choose the best quotes from all the options that various lenders have offered, and study them in detail before selecting one. It is not imperative to get the full amount needed to cover your expenses from a single loan. Spread out your funding sources by borrowing in part from trustworthy friends or relatives. You can even turn customers who believe in your products and skills into potential investors to see you through the early days of your new business.
Be wary of deals that involve high interest rates or high risk loans, even if they appear to offer you more capital. Unscrupulous deals such as these often result in the business owner being forced to file for bankruptcy. As many people know, bankruptcy can leave a penetrating stain on you credit history and good name for years to come. While recovery from such a financial blow is possible, it takes a large amount of time and effort, in addition to being an extremely stressful and painful experience.
A small business loan can be the first of many steps along a financial path leading to failure or success. If you are smart, cautious, and choose the right options, you can build a history of success that can take you to even greater heights in the business world and gain the trust of future investors, lenders, and partners. Best of luck to you in attaining all of your business dreams!