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Generally entrepreneurs have to have access to capital at some instant. The good news is, there are several distinct business finance programs. Unfortunately, that's in addition the bad news. In other words, the money's out there, but it can be confusing to determine which business loans to submit an application for, in particular since a lot of business loans support particular things.

As soon as it comes to the financing popularity contest, equity funding is presently in fashion. Articles in the mainstream media concerning venture capital have glamorized the concept of selling stock in your startup, and entrepreneurs across the board would to a great extent have a preference to create capital in the form of equity more readily than debt.

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Equity is so appealing because it feels like you're receiving free cash through the startup phase. There are as a rule no repayment obligations and no interest payments payable to equity investors. You'll also have some voice in negotiating the price of your stock, any share payments and the importance the financier will have in your company. If your company goes belly-up, it's their loss (unless, of course, your investors can confirm in court that you didn't divulge essential information that would have influenced their decision to invest).

As well as providing funding, equity investors can be accommodating in other ways as well. They pass their business know-how and lessons learned to bear on your company, plus they can become a board member. The finest equity investors are individuals with know-how in your industry, know-how of launching a business, a cool nature and a large bank balance. Some say choosing an equity financier is akin to getting married-you're making yourself answerable to this person through thick and thin, so select with care.

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Before you go investor shopping, though, you ought to prudently reflect upon just what you are promoting and what having equity investors really means for you and your business. Very few businesses will ever be able to provide a decent return on investment (ROI) for equity investors. The normal restaurant or retail store, for example, 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 accomplishing liquidity for your first investors is low. You must be sincere with yourself regarding whether your investors expect to be paid back.

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What about good, old-fashioned loans?

If the shine of equity capital is stained by the reality of having to generate a respectable return on investment, you can fall back on a loan. The nice news regarding debt financing is that you are still entirely in charge of your business-your lone responsibility 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 intrude in your business. Interest payments are typically a deductible business expense, and if your lender is someone you know well, you might 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 demonstrate that you are worth the cash, you�ll 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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