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Generally entrepreneurs have to have access to funds at some stage. The pleasant news is, at hand there are several different business loan programs. Unhappily, that is in addition the adverse news. In other words, the cash is out there, nevertheless it can be bewildering to determine which business loans to submit an application for, chiefly for the reason that a lot of business loans finance certain things.

When it comes to the financing popularity contest, equity funding is at present in fashion. Stories in the mainstream media concerning venture capital have glamorized the idea of selling stock in your startup, and entrepreneurs across the board would much wish to raise money in the form of equity rather than debt.

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Why is equity so appealing? Because it feels like you're in receipt of "free" cash through the startup period. There are frequently no repayment obligations and no interest payments due to equity investors. You will in addition have some shout in negotiating the cost of your stock, any dividend payments and the importance the shareholder will have in your company. If your business goes belly-up, it is their loss (unless, of course, your investors can verify in court that you didn't unveil unfavorable information that would have influenced their decision to invest).

Likewise providing funding, equity investors can be accommodating in extra ways as well. They bring in their business experience and lessons learned to bear on your business, and they can become a advisor. The finest equity investors are those with understanding in your business, familiarity launching a business, a cool temperament and a large bank balance. Some say choosing an equity financier is like getting married-you are making yourself answerable to this person through thick and thin, so select carefully.

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Before you go investor shopping, though, you ought to prudently think about just what you're selling and what having equity investors really means for you and your business. Very few businesses will ever be able to provide a good return on investment (ROI) for equity investors. The typical restaurant or retail store, for instance, is unlikely to have any liquidity for its shares. And even if you plan to boast a high-growth tech business, the possibility of accomplishing liquidity for your first investors is low. You should be truthful with yourself about whether your investors expect to be remunerated.

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What about good, old-fashioned loans?

If the shine of equity capital is stained by the reality of having to create a respectable return on investment, you can fall back on a loan. The nice news regarding debt financing is that you're in spite of everything entirely in charge of your company-your only 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 meddle in your business. Interest payments are typically a deductible business cost, and if your lender is someone you know well, you may well be able to get flattering 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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