Which Small Business Loan is Right for You?
A Home Business Article Contributed by Abe Gardea
Which Small Business Loan is Right for You?
It's the most important part of starting a new business, but perhaps the most intimidating to most new entrepreneurs: applying for the small business loan. What makes it so scary for many is that the process isn't clearly defined; in other words, in an unfamiliar world filled with regulations and hard to follow guidelines, how does one know where to begin? Start by doing research about the various lending institutions and their requirements. Then, begin talking to lenders and asking them for tips in order to prepare the best possible loan application.
What will you do with your small business loan?
Before you make your first application, it's imperative that you understand exactly how much money you need, and specifically what you will use it for. There's nothing more dangerous than receiving a small business loan, and not having clearly defined uses for it. Ask yourself some questions before you begin the application process. What are your specific needs? Do you need start-up or expansion capitol? Are you looking for investors only, or do you require capitol and guidance?
Have you completed a business plan that shows exactly how much capitol you need and where? These questions will not only help you to define your needs, but most lenders won't even consider talking to you until you can tell them exactly how much money is needed, and what will be done with it.
In addition, it's important to understand the types of loans that are available to most small business owners. Basically, there are two types of general loans: equity and debt financing. Let's take a look at each.
Equity small business loans
Most small business equity loans come from friends, family, business associates and lastly, venture capitalists, which are the most common of all equity loans. If you plan to approach a venture capitalist, you'll most likely find them through referrals. In addition, there are numerous web sites dedicated to hooking up venture capitalists with loan seekers.
But there is one thing you should know about venture capitalists before asking one for a loan; you will have to give up a certain amount of control of your business if you get involved with them. Most won't exercise control unless the business begins to do bad, or management problems arise.)
Debt financing small business loans
These are the traditionally thought of loans that come from banks, credit unions, commercial finance companies and the Small Business Administration. These loans comes in all shapes and sizes: short term financing, revolving lines of credit, and direct purpose loans for specific causes, such as purchasing equipment or machinery. The SBA has played a huge part in securing financing loans for businesses that may not have had a chance otherwise.
They guarantee funds to certain banks, and that give those banks more confidence when deciding whether or not to approve an application. The one drawback to these types of loans is that, in most instances, a small business borrower will be asked to guarantee the loan with their personal signature.
