Both small and large businesses generally need at least some startup capital to get a leg up in the market. For most businesses, this funding comes in the form of traditional business loans. But within the lending world, there are a myriad of different options suited to different business models and structures. Additionally, there is a good deal to think about before you even go about applying for a business loan. Ultimately, where you get your loan, when you get your loan and what type of loan you get is up to the leadership of your business. Here is some information that you can use to make the best decisions possible when it comes to acquiring your business’s first capital.
Before You Get a Loan
While it might be tempting to jump straight from the stages of writing a business plan or dreaming up your next business concept to applying for a loan, there are some steps you should take before even considering a business loan.
- Be thrifty: We all know about the number of successful corporations that began in someone’s spare garage and expanded into multi-billion dollar enterprises. Many businesses begin their life operating on a miniscule or non-existent budget, but they go on to thrive because of their ingenuity and the drive and creativity of their owner. In the beginning, it may be more productive to scrimp and save rather than going immediately into debt.
- Consider equity financing: Something else you might want to think about before taking out a loan is getting equity investors, such as venture capitalists or other types of startup or small business investors, to purchase shares in your company in return for cash. You can choose to either sell off shares in your business or promise investors a cut of the profits, and in exchange you will receive the capital you need to get your business off the ground. As with any legal transaction, make sure all the details of the arrangement are put in writing before any cash exchanges hands.
Getting a Business Loan
If you have gone through the possibilities above and have determined that a business loan is the right option for you, you will want to start by looking into the sources for low-interest business loans that are available to entities of your size. Besides the usual establishments that dispense personal loans, such as credit unions, banks and other financial institutions, other organizations such as the federal Small Business Association may also be able to give you a loan.
Your loan will be backed by a legally binding document called a promissory note, which will verify that you or your business has borrowed a certain amount of money from a particular entity and you pledge to repay these funds over a specified period of time at a certain interest rate. Finding a business loan with a low interest rate is possible, especially if you are a smart consumer and do your comparison shopping before signing any documents. However, the size of your business, the amount of the desired loan, how long you have been established and the nature of the business will be major determining factors in what kind of loan and interest rate you will be eligible for.
Just as in personal loans, you may be asked to determine a co-signor or guarantor for your loan. This is another party who has interest in the business and verifies your promise to repay the money in question in a timely fashion. You may also be asked to bring collateral into the terms of a business loan. Collateral can be represented by any business assets you might have, such as real estate, business supplies and more.
Getting a business loan is a fairly simple and straightforward process as long as you are comfortable with the terms of the loan and are knowledgeable about exactly what fiscal responsibility your business is taking on.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.