Online Business Financing
Finding the Money you Need - Financing your Business Start-Up
One key to a successful business startup and expansion is your ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities. But, as many new entrepreneurs quickly discover, raising capital may not be easy; in fact, it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising money for your business will not be a painful experience.
This information summary focuses on ways a small business can raise money and explains how to prepare a loan proposal.
Finding the Money You Need
There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.
Personal savings: The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans.
Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started.
Banks and credit unions: The most common source of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.
Venture capital firms: These firms help expanding companies grow in exchange for equity or partial ownership.
It is often said that small business people have a difficult time borrowing money. This is not necessarily true.
Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests.
Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: High Risk!
To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk.
SBA Loan Maturities
SBA loan programs are generally intended to encourage longer term small business financing, but actual loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: 25-years for real estate; up to ten years for equipment (depending on the useful life of the equipment); and generally up to seven years for working capital. Shortterm loans are also available through the SBA to help small businesses meet their short term and cyclical working capital needs.
Types of Business Loans
Terms of loans may vary from lender to lender, but there are two basic types of loans: shortterm and longterm.
Generally, a shortterm loan has a maturity of up to one year. These include workingcapital loans, accountsreceivable loans and lines of credit.
Longterm loans have maturities greater than one year but usually less than seven years. Real estate and equipment loans may have maturities of up to 25 years. Longterm loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.
How to Write a Loan Proposal
Approval of your loan request depends on how well you present yourself, your business, and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal.