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On the whole entrepreneurs need to have access to money at some stage. The good news is, at hand there are many different business finance programs. Alas, that's also the adverse news. In other words, the funds are at hand, however it can be confusing to determine which business loans to apply for, particularly since numerous business loans fund specific things.

When it comes to the financing popularity contest, equity funding is at present in vogue. Articles 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 much desire to create money in the form of equity rather than debt.

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Equity is so appealing as it feels like you are receiving "free" cash during the startup stage. There are usually no repayment obligations and no interest payments owing to equity investors. You'll in addition have some say 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 prove in court that you didn't divulge critical information that would have influenced their decision to invest).

In addition to providing funding, equity investors can be valuable in other ways as well. They bring their business know-how and lessons learned to bear on your company, moreover they can turn out to be a board member. The greatest equity investors are individuals with knowledge in your business, experience launching a business, a cool personality and a large bank balance. Some say choosing an equity investor is similar getting married-you're making yourself answerable to this individual through thick and thin, so choose cautiously.

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Before you go investor shopping, though, you ought to cautiously reflect upon just what you are selling and what having equity investors in fact means for you and your company. Very few company's will ever be able to deliver a good return on investment (ROI) for equity investors. The average restaurant or retail store, for example, is not likely to have any liquidity for its shares. And even if you plan to possess a high-growth tech business, the probability of accomplishing liquidity for your first investors is low. You have got to be sincere with yourself about 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 tarnished by the realism of having to create a respectable ROI, you can fall back on the old familiar friend: a loan. The good news in relation to debt financing is that you're in spite of everything entirely in charge of your company-your lone job 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 pry 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 show that you are worth the capital, 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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