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How to Finance Your Small Business
The process of obtaining money to start-up your business can be frustrating and
sometimes fatal for the new enterprise. Your business success depends on your
ability to secure adequate financing. Being under funded is one of the most common
reasons a start-up business fails. No matter how great is your idea for a new
business, you won't get past the starting point without funding. It’s the lack of finance
that’s standing between you and starting your own new business. While there are
many ways to find money, most are generally more appropriate for more established
companies. Still, there are some smart ways for startups. In this report, you will learn
some of the factors that can help you to succeed in raising money while continuing to
develop your business concept. Here's a look at fifteen options:
Micro Loans
Micro Loans are loans granted to small and home-based businesses who are unable
to obtain loans through regular banks. These loans are called micro loans because
they are generally for $35,000 or less. They are also available to minorities, women,
the poor, and people with disabilities, or people in not perfect credit, who often have
trouble obtaining conventional financing. Obtaining loans from 3 to 4 such sources
can help you easily raise over $50K. The loans can be privately funded or
administered by an organization such as the Small Business Administration's
Microloan Program. You can check with your local community bank to see if they
offer microloans. Here are some of the sources offering microloans.
Peer to Peer Lending
A very popular way to borrow money is through Web sites like LendingClub.com and
Prosper.com. These websites bring individual borrowers and lenders together.
Prosper.com is America's largest people-to-people lending marketplace, connects
people who need to borrow money with people who have money to lend.
Connecting people-to-people eliminates the need for borrowers to go through a bank
for a loan, and lenders can expect more from their money while helping fellow
Americans.
Borrowers create a listing and set the interest rate they're willing to pay
Lenders place bids with as little as $50 toward the loan
Prosper combines the bids with the lowest rates into one simple fixed rate loan
The loan amount is deposited directly into your bank account. At Prosper.com,
parties on both sides negotiate the rate, though borrowers can set a maximum they
are willing to pay. The companies oversee loan repayment and provide all the
necessary paperwork.
LendingClub.com bases loan rates on the borrower's credit profile. Lending Club is a
social lending network where members can borrow and lend money among
themselves at better rates.
Some borrowers have found this is an easier way to get money, at more favorable
terms, than through traditional sources.
Third Party Guarantee Loans
Here’s another way to obtain financing for your business. Using Co-signers and Co-
makers can help you when you don’t qualify for a loan on your own because you
have bad credit or no previous credit. You may try to qualify by getting a cosigner.
One of the easiest ways to find cosigners and co-makers is to simply ASK firms and
people you know. These people can be your immediate family member, your boss,
your business partner, a friend, your client, an able uncle, an acquaintance, any
person or firm with the credit, financial condition and willingness to do so. You can try
to convince an established business owner to be your endorser. The way to get
another party to take this risk is to identify those companies or individuals who stand
to benefit most by your success. When promising to deal only with a single supplier
and proving that you will soon be a major customer and you may get that needed
endorsement. The other method is to pay someone to be your cosigner. Or, you may
employ the services of a professional finder to find a cosigner. Be creative and you
could have a lot of people eager to cosign for you. But, always remember, where
fees are to be paid, you must be very caution.
Small Business Bank Loans:
This is the traditional option—an entrepreneur goes to his or her local bank and asks
for start-up funding. But banks tend to favor established businesses with a track
record and assets. Large banks are not especially eager to lend the relatively small
amounts of start-up money most individuals need.
For most startups, getting a traditional bank loan is a long shot. Many financial
institutions provide some type of small business loan program. In order to get funding
from a bank for your small business, you will need a solid business plan. You'll have
to prove that your business will generate enough cash to make the loan payments.
That's because banks typically will only consider companies that have been in
business for two years. What's more, they need to see a tangible asset that can be
used as collateral. Each bank's requirements are different but if you are able to
articulate how you will succeed, have decent credit, and possibly a co-signer, you
may be able to secure a small business bank loan. List of lender offering unsecured
startup business loans and unsecured business lines of credit is provided to you in
this report.
SBA Loans
The SBA is a great resource that provides information on requirements, credit
factors, how to apply for loans, etc. The web site is a good starting point before
attempting to apply at a bank. The better prepared you are, the easier it will be when
you begin the application process.
SBA Loans
Available only to U.S.-based businesses, the SBA (the U.S. Small Business
Administration) has assisted thousands of entrepreneurs start their own small
businesses. The SBA doesn't issue grants (money you don't have to pay back) or
make loans directly, rather, it guarantees loans made by private lenders thereby
reducing or eliminating the risk inherent in new business ventures and making
lenders more willing to lend.
The primary consideration for the SBA is repayment ability from the cash flow of the
business as well as "good character, management capability, collateral and owner's
equity". You will be expected to personally guarantee your loan. This means your
personal assets are at risk.
As for the types of businesses eligible for SBA loans, the SBA imposes the following
criteria: the business must be "for-profit" (all that means is that your business has a
profit motive, not that it has actually generated a profit yet), be engaged in business
in the United States, there must be "reasonable" owner equity (what's reasonable will
depend on the circumstances) and you are expected to use alternative financial
resources first, including your own assets where practicable.
The SBA also imposes limitations on the use of loan proceeds. For example,
although the proceeds can be used for most business purposes (the examples given
by the SBA include "the purchase of real estate to house the business operations;
construction, renovation or leasehold improvements; acquisition of furniture, fixtures,
machinery and equipment; purchase of inventory; and working capital"), you can't
use the loan proceeds for financing floor plan needs, to pay existing debt, to make
payments to the business owners or to pay delinquent taxes etc.
As a general rule, loans for working capital must be repaid within seven years and
loans for fixed assets must be paid for by the end of the economic life of the assets
(but not to exceed 25 years).
Interest rates are negotiated between the borrower and the lender but the SBA
imposes maxima, which are pegged to the Prime Rate.
Finally, the SBA charges lenders a guaranty and servicing fee for each loan
approved, and there is nothing preventing the lender from charging these fees to the
borrower. The guaranty fee for a loan of $150,000 or less is 2% of the guaranteed
amount; over $150,000 but below $700,000, it's 3% and above $700,000 it's 3.5%.
The annual servicing fee is 0.5%, which is calculated on the then-current loan
balance.
Where the borrower meets the SBA's credit and eligibility requirements, it will
guarantee up to $85% of loans $150,000 and less and up to 75% of loans above
that amount (up to a maximum of $1,000,000).
For more information about the various SBA loan programs, visit the SBA website at
http://www.sba.gov.
sometimes fatal for the new enterprise. Your business success depends on your
ability to secure adequate financing. Being under funded is one of the most common
reasons a start-up business fails. No matter how great is your idea for a new
business, you won't get past the starting point without funding. It’s the lack of finance
that’s standing between you and starting your own new business. While there are
many ways to find money, most are generally more appropriate for more established
companies. Still, there are some smart ways for startups. In this report, you will learn
some of the factors that can help you to succeed in raising money while continuing to
develop your business concept. Here's a look at fifteen options:
Micro Loans
Micro Loans are loans granted to small and home-based businesses who are unable
to obtain loans through regular banks. These loans are called micro loans because
they are generally for $35,000 or less. They are also available to minorities, women,
the poor, and people with disabilities, or people in not perfect credit, who often have
trouble obtaining conventional financing. Obtaining loans from 3 to 4 such sources
can help you easily raise over $50K. The loans can be privately funded or
administered by an organization such as the Small Business Administration's
Microloan Program. You can check with your local community bank to see if they
offer microloans. Here are some of the sources offering microloans.
Peer to Peer Lending
A very popular way to borrow money is through Web sites like LendingClub.com and
Prosper.com. These websites bring individual borrowers and lenders together.
Prosper.com is America's largest people-to-people lending marketplace, connects
people who need to borrow money with people who have money to lend.
Connecting people-to-people eliminates the need for borrowers to go through a bank
for a loan, and lenders can expect more from their money while helping fellow
Americans.
Borrowers create a listing and set the interest rate they're willing to pay
Lenders place bids with as little as $50 toward the loan
Prosper combines the bids with the lowest rates into one simple fixed rate loan
The loan amount is deposited directly into your bank account. At Prosper.com,
parties on both sides negotiate the rate, though borrowers can set a maximum they
are willing to pay. The companies oversee loan repayment and provide all the
necessary paperwork.
LendingClub.com bases loan rates on the borrower's credit profile. Lending Club is a
social lending network where members can borrow and lend money among
themselves at better rates.
Some borrowers have found this is an easier way to get money, at more favorable
terms, than through traditional sources.
Third Party Guarantee Loans
Here’s another way to obtain financing for your business. Using Co-signers and Co-
makers can help you when you don’t qualify for a loan on your own because you
have bad credit or no previous credit. You may try to qualify by getting a cosigner.
One of the easiest ways to find cosigners and co-makers is to simply ASK firms and
people you know. These people can be your immediate family member, your boss,
your business partner, a friend, your client, an able uncle, an acquaintance, any
person or firm with the credit, financial condition and willingness to do so. You can try
to convince an established business owner to be your endorser. The way to get
another party to take this risk is to identify those companies or individuals who stand
to benefit most by your success. When promising to deal only with a single supplier
and proving that you will soon be a major customer and you may get that needed
endorsement. The other method is to pay someone to be your cosigner. Or, you may
employ the services of a professional finder to find a cosigner. Be creative and you
could have a lot of people eager to cosign for you. But, always remember, where
fees are to be paid, you must be very caution.
Small Business Bank Loans:
This is the traditional option—an entrepreneur goes to his or her local bank and asks
for start-up funding. But banks tend to favor established businesses with a track
record and assets. Large banks are not especially eager to lend the relatively small
amounts of start-up money most individuals need.
For most startups, getting a traditional bank loan is a long shot. Many financial
institutions provide some type of small business loan program. In order to get funding
from a bank for your small business, you will need a solid business plan. You'll have
to prove that your business will generate enough cash to make the loan payments.
That's because banks typically will only consider companies that have been in
business for two years. What's more, they need to see a tangible asset that can be
used as collateral. Each bank's requirements are different but if you are able to
articulate how you will succeed, have decent credit, and possibly a co-signer, you
may be able to secure a small business bank loan. List of lender offering unsecured
startup business loans and unsecured business lines of credit is provided to you in
this report.
SBA Loans
The SBA is a great resource that provides information on requirements, credit
factors, how to apply for loans, etc. The web site is a good starting point before
attempting to apply at a bank. The better prepared you are, the easier it will be when
you begin the application process.
SBA Loans
Available only to U.S.-based businesses, the SBA (the U.S. Small Business
Administration) has assisted thousands of entrepreneurs start their own small
businesses. The SBA doesn't issue grants (money you don't have to pay back) or
make loans directly, rather, it guarantees loans made by private lenders thereby
reducing or eliminating the risk inherent in new business ventures and making
lenders more willing to lend.
The primary consideration for the SBA is repayment ability from the cash flow of the
business as well as "good character, management capability, collateral and owner's
equity". You will be expected to personally guarantee your loan. This means your
personal assets are at risk.
As for the types of businesses eligible for SBA loans, the SBA imposes the following
criteria: the business must be "for-profit" (all that means is that your business has a
profit motive, not that it has actually generated a profit yet), be engaged in business
in the United States, there must be "reasonable" owner equity (what's reasonable will
depend on the circumstances) and you are expected to use alternative financial
resources first, including your own assets where practicable.
The SBA also imposes limitations on the use of loan proceeds. For example,
although the proceeds can be used for most business purposes (the examples given
by the SBA include "the purchase of real estate to house the business operations;
construction, renovation or leasehold improvements; acquisition of furniture, fixtures,
machinery and equipment; purchase of inventory; and working capital"), you can't
use the loan proceeds for financing floor plan needs, to pay existing debt, to make
payments to the business owners or to pay delinquent taxes etc.
As a general rule, loans for working capital must be repaid within seven years and
loans for fixed assets must be paid for by the end of the economic life of the assets
(but not to exceed 25 years).
Interest rates are negotiated between the borrower and the lender but the SBA
imposes maxima, which are pegged to the Prime Rate.
Finally, the SBA charges lenders a guaranty and servicing fee for each loan
approved, and there is nothing preventing the lender from charging these fees to the
borrower. The guaranty fee for a loan of $150,000 or less is 2% of the guaranteed
amount; over $150,000 but below $700,000, it's 3% and above $700,000 it's 3.5%.
The annual servicing fee is 0.5%, which is calculated on the then-current loan
balance.
Where the borrower meets the SBA's credit and eligibility requirements, it will
guarantee up to $85% of loans $150,000 and less and up to 75% of loans above
that amount (up to a maximum of $1,000,000).
For more information about the various SBA loan programs, visit the SBA website at
http://www.sba.gov.