A Small Business Startup Loan Might be Necessary

March 22nd, 2009 | Posted in Business Loans

Most businesses require a minimal amount of capital to get things off the ground and to maintain daily operations until they start showing a profit. Although there are several shoestring start-ups that you can get going for a few hundred dollars, it can take a long time to make a liveable income.

The reality is that larger ventures will require some sort of investment. But what if you have a great idea and lack capital? Well, the good news is that there is plenty of money available for the would-be entrepreneur to cover start-up costs – however, it does take a little preparation and hard work.

Unless you are able to come up with the cash yourself, or borrow enough from friends and family, you’ll have to deal with investors. This could be a bank, institutional/private venture capitalist, or a government loan/grant. Contrary to popular belief, investors aren’t looking for reasons to decline your loan application (after all, they want to make money too), but they are very protective of their assets. They didn’t get to where they are by making bad loans.

For this reason, you are going to have to have your “ducks in a row” before you attempt to ask for money from these institutional lenders. Often, this means that you need to have a personal resume/prospectus and a bullet-proof business plan. You will also need to answer any questions they have about your start-up business. Above all, you must be able to instil confidence and assure them that you have experience, you know what you’re doing, and you are likely to turn a profit.

In short, they will want to know how you plan on spending their money, what return you expect to make, and how quickly all that’s going to happen. This should all be in your detailed business plan (which will be the first thing they’ll ask to see after they review your own personal credentials or prospectus (personal assets, education, experience, and credit history).

If you had a previous business, they may want to know about any loans you took out, how you used them and how quickly you paid them off. You should have proper accounting documents (books) to show them the actual numbers.

An investor may also want to see copies of your tax return for the past three years or more and may also inquire about any personal assets you have that might be used as collateral. Though this sounds excessive, they will do everything they can to protect their interests.

Amazingly, the more money you have, the greater the chances of your loan being approved – though it kind of defeats the whole purpose of asking for a loan in the first place.

If your loan application is turned down, don’t take it personally. There are many reasons why an investor would decline your application. It may not be the type of business they want to invest in, they might only extend large loans to larger companies, they might decide that your idea is not feasible, or they may be hesitant to invest in a one or two person business.

If you don’t have an established business, you will have a harder time getting any funding. A business that is already successful, and has a history, can offer investors a little security and piece of mind. Alternatively, if all you have is an idea and a promise, you might be in for a rough ride.

Don’t be discouraged. It might take a few no’s before you finally convince someone to take a chance on you. Persistence, confidence, and a business-like attitude will make it happen.

Once you finally get your loan approved, it’s imperative that you get your lawyer to look over the contract before you sign it. Never put your signature on anything you don’t fully understand.

Though many entrepreneurs borrow from friends and family, or use their own savings – if you plan on starting something big or you want to expand your existing business, you’ll likely need to apply for a bank, government, or venture capital loan. Don’t be intimidated – just make sure you’re prepared with a comprehensive business plan, personal resume, and any supporting documents they may require. Be pleasant, confident, and business like. Tell them how much you need, why you need it, how you will spend the money, and the profit you expect to earn.