wiseGEEK: How Do I Get a Loan to Start a Business?
In order to get a loan to start a business, an entrepreneur needs to be organized, educated, and tenacious. There are many different sources of start-up loans to consider, including bank loans, private loans from friends and family, venture capital, and personal resources. Creating an appealing and reasonable business plan. offering investors excellent opportunities, or knowing how to free up existing capital can also help even the newest entrepreneur get a loan to start a business.
Whether approaching a bank or a wealthy uncle, it is important to approach potential investors in a professional, organized manner. While an entrepreneur may have a great idea for a venture, business acumen, clear goals, and a comprehensive knowledge of the risks and opportunities may prove even more important in attracting investors or securing a loan. Before setting up meetings to ask for a loan, study business laws and lending regulations that apply to the situation, the possible types of loans available, and reasonable terms for repayment. With a lending organization, this knowledge can help an entrepreneur appear professional and capable; with private investors, education and organization help denote that an entrepreneur is serious about the venture.
Approaching a bank may seem like the best move, but take time to consider other ways to get a loan to start a business. Friends and relatives may be willing to provide small loans for start-up costs, often at better interest rates than a bank will provide. Government grants and loans may be available for entrepreneurs or businesses that the government is trying to stimulate. Private foundations may offer loans and grants to underrepresented entrepreneur, such as women or people from certain origins. Utilizing these alternative resources can help get a loan to start a
business on very good terms if approaching a bank is not feasible.
Attempting the venture capitalist route is not for the faint of heart, but can sometimes pay off great dividends. Venture capitalists are investors that specialize in funding new or expanding businesses; in return for their investment, they typically receive partnership status or a share of the business. Often, getting a loan from a venture capitalist is easier after a small business has built up a strong track record of success. One of the major benefits of this approach is that the business may benefit simply from an name association with a successful venture capitalist firm or professional.
To have any chance of getting a loan from an external source, it is important to create a business plan. This will include a list of the company's mission, core values, and operating structure as well as details about the marketing image of the business. Most importantly, a business plan will include carefully researched information about start-up costs, operating expenses for at least the first year, and sales forecasts. Some entrepreneurs spend many months crafting a business plan that will be attractive to investors, and may hire analysts or financial professionals to create the forecasts and financial planning aspects. Without a reasonable business plan, it may be nearly impossible to get a loan.
One final way to get a loan to start a business is by utilizing existing capital. Withdrawing from personal savings, retirement plans, or using home equity as loan collateral can all generate capital that may be used to start a business. While this may be somewhat risky to the entrepreneur, it does carry the benefit of not requiring a specific repayment plan.Source: m.wisegeek.net