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Small
Business Loan Basics
by: Joseph Kenny
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.
About The Author
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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