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For the most part entrepreneurs must borrow capital at some time. The good news is, there are loads of distinct business finance programs. Unhappily, that is in addition the bad news. In other words, the money's out there, except it can be bewildering to determine which business loans to apply for, especially because various business loans support particular things.

When it comes to the financing popularity contest, equity funding is at present in fashion. Articles in the mainstream media regarding venture capital have glamorized the concept of selling stock in your startup, and entrepreneurs across the board would much desire to create cash in the form of equity more willingly than debt.

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Equity is so appealing as it feels like you are getting free money throughout the startup phase. There are by and large no repayment obligations and no interest payments owing to equity investors. You'll in addition have some input in negotiating the cost of your stock, any share payments and the position the shareholder will have in your company. If your company goes belly-up, it is their loss (unless, of course, your investors can show in court that you did not unveil essential information that would have influenced their decision to invest).

Besides providing funding, equity investors can be supportive in extra ways as well. They bring in their business knowledge and lessons learned to bear on your company, plus they can become a advisor. The finest equity investors are those with experience in your business, experience launching a business, a cool personality and deep pockets. Some say choosing an equity financier is similar getting married-you're making yourself accountable to this individual through thick and thin, so choose sensibly.

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Before you go investor shopping, though, you must prudently think about just what you're selling and what having equity investors in actuality means for you and your business. Very few businesses will ever be able to deliver a decent return on investment (ROI) for equity investors. The normal restaurant or retail store, for instance, is not likely to have any liquidity for its shares. And even if you plan to come up with a high-growth tech business, the possibility of reaching liquidity for your first investors is low. You must be truthful with yourself regarding whether your investors expect to be remunerated.

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What about good, old-fashioned loans?

If the sheen of equity capital is tarnished by the realism of having to make a respectable ROI, you can fall back on a loan. The nice news with reference to debt financing is that you're still totally in charge of your business-your solitary job to your lender is to make your payments on time, as spelled out in your promissory note. As long as you do that, your lender has no right to pry in your business. Interest payments are typically a deductible business expense, and if your lender is someone you know well, you may be able to get favorable settlement terms that can make the loan walk and talk much like an equity investment.

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There are several ways to create this flexibility:

• Defer the start date of repayment by adding a "grace period." Startup loans often have a six- to 12-month grace period before repayment starts, providing entrepreneurs with some time to ramp up the business.
• Capitalize interest. Your lender can also capitalize the deferred payments so they don't lose interest funds during the grace period. This allows you to pitch a lender by suggesting a much longer grace period (if you think you'll need more than 12 months).
• Use interest-only payments. If your lender wants to be repaid immediately, offer to make interest-only payments for a period of time to keep your monthly budget in check.
• Institute graduated payments. You can create a unique repayment schedule with low payments at the start of the loan and higher payments at the end when your business is proven.

For lenders who are very cautious about making a loan, you can offer to provide collateral on the loan, such as a lien on your car or home equity. Be careful, though: If your business isn't yet well established, taking on this type of risk too early could be a bad move.

Another solution that some entrepreneurs have used to find a happy middle ground between debt and equity financing is convertible debt, which is simply debt that converts to equity as the business grows.

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In order to corroborate that you are worth the capital, you will want to prepare some documentation. First, your personal credit history is relevant to your small business loan � especially if your business does not have a long operating history. They will assume that you operate your business in the same manner that you manage your personal finances. Bring your credit history with you to reference as necessary.

Next, bring financial statements for your business. You’ll need to show your business’s financial health. They want to know how much it’s worth and how much money you’re moving. If you’re serious about small business loans, then you’ll also want to prepare detailed pro-forma statements. These give projections about what your business will be worth going forward.

Finally, be sure you have an updated business plan. By preparing a detailed business plan, you’ll already have your financial statements and pro-formas prepared. Banks award small business loans to those that have everything spelled out and planned. I strongly suggest that you prepare a plan with as much detail as possible – including bios of you and your partners, your track record, your strategies and advantages, and more.

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