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On the whole entrepreneurs have to have access to funds at some time. The good news is, at present there are lots of distinct business finance programs. Alas, that is in addition the sorry news. In other words, the money's at hand, although it can be confusing to come to a decision on which business loans to apply for, especially for the reason that various business loans support certain things.

As soon as it comes to the financing popularity contest, equity funding is presently in vogue. Articles in the mainstream media as regards venture capital have glamorized the idea of promoting stock in your startup, and entrepreneurs across the world would much choose to raise cash in the form of equity instead of debt.

apply for small business credit card

Equity is so appealing because it feels like you're receiving free cash through the startup period. There are as a rule no reimbursement obligations and no interest payments appointed to equity investors. You will in addition have some say in negotiating the outlay of your stock, any dividend payments and the status the investor will have in your company. If your business goes belly-up, it is their loss (unless, of course, your investors can prove in court that you did not disclose unfavorable information that would have influenced their decision to invest).

Likewise providing funding, equity investors can be effective in extra ways as well. They bring their business know-how and lessons learned to bear on your business, and they can turn out to be a advisor. The finest equity investors are individuals with understanding in your business, familiarity launching a business, a cool personality and a large bank balance. Some say choosing an equity investor is like getting married-you're making yourself responsible to this person through thick and thin, so choose with care.

apply for small business credit card

Before you go investor shopping, though, you must prudently think about just what you are selling and what having equity investors really means for you and your business. Very few company's will ever be able to hand over a good return on investment (ROI) for equity investors. The typical restaurant or retail store, for example, is not likely to have any liquidity for its shares. And even if you plan to have a high-growth tech business, the probability of accomplishing liquidity for your early investors is low. You must be honest with yourself about whether your investors expect to be remunerated.

apply for small business credit card

What about good, old-fashioned loans?

If the shine of equity capital is tarnished by the realism of having to create a respectable ROI, you can fall back on a loan. The good news about debt financing is that you are still totally in charge of your business-your lone task to your lender is to achieve your payments on time, as spelled out in your promissory note. As long as you do that, your lender has no right to intervene in your business. Interest payments are typically a deductible business outlay, and if your lender is someone you know well, you may well be able to get favorable settlement conditions 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.

apply for small business credit card

In order to attest that you are worth the cash, 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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