Many people who want to start their own business need an injection of financial capital at the beginning of a business; The main source of financing for entrepreneurs is business loans.
Let’s take a look at what to 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 an entrepreneur for the first time. At this time, you are considered a high business risk and you should start your loan negotiations with some advantages. Of course, the ideal option is to run your business for a few years, even outside of your home, and make a good profit before going to a bank for a loan.
That shows that you have the ability to make money and that your business will not fail before the Open sign appears on the door. But if this is not possible, if you need the cash before you can start, you will likely need to offer some kind of guarantee. The warranty can be anything from your car to your home and everything in between. Depending on the size of the loan, you may need some pretty tough assets as collateral. The lender is not interested in whether or not your business will make money, other than the degree to which it will allow you to pay the money back on time. They just don’t want to lose the loan, so you will have to find some way to back yourself up.
Backing up your loan with assets, if you have them, is a good route, as long as you are confident enough in your financial situation to make sure you don’t lose your collateral. If you don’t have enough assets to replace your loan, another option is to find an endorsement. 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 your loan and promise to pay if they 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 off the ground, even if they don’t have the money to loan it up front.
When it’s time to borrow, do some comparisons between banks and credit unions, and don’t stop until you find the lowest possible interest rate. You’re already gambling a lot here – minimize the amount you’ll have to pay back by doing your homework and choosing the company that gives you the best deal. If you can’t get enough to cover the start-up expenses of your business, consider borrowing some of the cash from a friend or family member if you can, or even asking investors for help, such as customers who believe in your business. Don’t take a high-risk, high-rate business loan just because it offers you the highest 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 corporate world.
