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Financing Your Business

Applying for a Small Business Loan

Successful start-up loans will require hard work!

Personal Guaranty
Since the success of a small business is contingent upon the owner's skills and commitment, a small business owner will almost always be required to give a personal guaranty as well as pledge personal assets and collateral.

If you are using the proceeds from the loan for capital investment (buying equipment), the equipment can serve as a portion of the required collateral. If you use the money for operating expenses, the bank will ask for something of equivalent value to the loan as collateral.

Lending institutions will also require a start-up business to have an equity investment. This will require you to invest your own resources (dollars) in an amount between 20% and 50%, depending on the industry and risk factors of your business.

Beyond the numbers, a bank will want to know about you. What kind of management experience do you have in this field? The keys are to convince the lender that you understand every aspect of the business and are prepared to answer any questions.

Although sometimes loans are hard to get for start-up businesses, it is possible. Like a good scout - be prepared when you present your loan proposal to your lender.

The Reality of Grants
Do not expect to get a grant to start your "for-profit" business. There are some (rare) federal grants based on the need of the federal program for a product or process, and they are seeking someone that can develop these products.

Before developing a grant proposal, it is vitally important to understand the goals of the organization and the the grant program. This can be done through Internet research or talks with the contact person in the grant description.

What are my options?
If a lending institution turns you down for a start-up business loan, there are other resources you can consider...

- Bootstrapping - Can you start small and expand your business?
- Do you have equity in your home, car, life insurance or retirement that you
can use?
- Family or friends - Do you have relatives that have resources available to loan?