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Most entrepreneurs find it necessary to borrow money at some time. The good news is, at present there are several different business finance programs. Sorry to say, that is also the bad news. In other words, the capital is out there, nevertheless it can be confusing to make your mind up on which business loans to apply for, particularly since numerous 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 on the subject of venture capital have glamorized the idea of promoting stock in your startup, and entrepreneurs across the world would a large amount desire to create cash in the form of equity rather than debt.

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Equity is so appealing because it feels like you are getting "free" capital through the startup period. There are frequently no compensation obligations and no interest payments payable to equity investors. You will furthermore have some involvement in negotiating the outlay of your stock, any dividend payments and the position the backer will have in your company. If your company goes belly-up, it is their loss (unless, of course, your investors can attest in court that you didn't disclose essential info that would have influenced their decision to invest).

In addition to providing funding, equity investors can be of use in other ways as well. They pass their business knowledge and lessons learned to bear on your business, plus they can become a board member. The greatest equity investors are those with wisdom in your business, know-how of launching a business, a cool character and a large bank balance. Some say choosing an equity investor is similar getting married-you are making yourself held responsible to this individual through thick and thin, so select prudently.

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Before you go investor shopping, though, you should prudently reflect upon just what you're promoting and what having equity investors in reality means for you and your company. Very few businesses will ever be able to provide a good return on investment (ROI) for equity investors. The average restaurant or retail store, for example, is unlikely to have any liquidity for its shares. And even if you plan to have a high-growth tech business, the probability of getting liquidity for your first investors is low. You ought to be truthful with yourself regarding whether your investors expect to be paid back.

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What about good, old-fashioned loans?

If the sheen of equity capital is stained by the realism of having to generate a respectable return on investment, you can fall back on the old familiar friend: a loan. The good news concerning debt financing is that you are still totally in charge of your company-your lone 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 intrude 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 repayment 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.

business loans without security

In order to corroborate that you are worth the money, 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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