Places for Small Business to Look for a Loan

A Home Business Article Contributed by Elizabeth Fox-Wise

One of the Biggest Hurdles for Small Business Can be Finding a Loan

Most small business will need a loan at some time in their life. If not for start up costs, then for expansions or upgrades down the road. It has been said that money is the mothers milk of a small start up business. Access to loans might make the difference between weather a small business survives or dies in infancy. But where does all of this money come from?

There are several types of business loans or financing options available to small business.

Some Good Places to Start Looking for a Small Business Loan

Angel Investors and Venture Capital.

Angel investors are an excellent source of early stage small business loans. They are often willing to loan money to small business where there is too much risk for banks and not enough profit potential for venture capitalists. Angels typically will invest for a longer time than other investors are willing to - up to five years or even more. They will also be willing to invest smaller amounts - $1 million or less.

Venture capitalists, on the contrary, have strict investment criteria and typically specialize in specific high-growth industries. They want to cash out in three to five years, so therefore, venture capitalists typically will not provide loans for very new businesses and rarely want to invest less than $5 million into a business. Accepting a venture capital investment also could be the loss of independence for small business owners, because venture capitalists often take an active role on the company's board and may push a specific agenda.

Commercial Banks

Commercial small business loans are attractive because they do not require the business owner to turn over any equity or company control. But maintaining payments on the debt can drain the finances of a start up small business with limited cash flow. New companies may not even have access to bank loans if they have no operating history and no collateral to secure the loan.

Small businesses looking for a loan of $100, 000 or less, however, can often find unsecured loans available through a simple application process focusing on the business owner's personal credit history. Business owners with personal assets can also obtain secured loans against those assets.

If That Doesn't Work, Where Else Can You Look for a Small Business Loan?

You can turn to the Small Business Administration

SBA loan guarantees can mean the difference between getting small business being able to get a bank loan and being entirely shut out. The federal agency loans no money directly. Instead, it guarantees seventy five percent of individual loans made by private lenders, up to $750, 000. But a business must first show that it cannot obtain conventional financing at reasonable terms. So you MUST try the avenues above first.

Furthermore, business owners must personally guarantee SBA loans and must be able to show cash flows sufficient to repay the loan. You can get information regarding SBA loans at most local banks.