ge business finance

Nearly all entrepreneurs find it necessary to have access to money at some time. The pleasant news is, at hand there are several different business loan programs. Alas, that is in addition the sorry news. In other words, the cash is at hand, but it can be perplexing to make your mind up on which business loans to submit an application for, in particular because scores of business loans finance specific things.

As soon as it comes to the financing popularity contest, equity funding is currently in fashion. Articles in the mainstream media with reference to venture capital have glamorized the idea of selling stock in your startup, and entrepreneurs across the world would to a great extent choose to raise cash in the form of equity instead of debt.

ge business finance

Equity is so appealing because it feels like you are being paid free money during the startup phase. There are frequently no refund obligations and no interest payments payable to equity investors. You will also have some input in negotiating the cost of your stock, any bonus payments and the position the financier will have in your business. If your business goes belly-up, it is their loss (unless, of course, your investors can confirm in court that you didn't disclose essential information that would have influenced their decision to invest).

Besides providing funding, equity investors can be valuable in other ways as well. They pass their business know-how and lessons learned to bear on your company, plus they can become a mentor. The preeminent equity investors are individuals with knowledge in your business, familiarity launching a business, a cool disposition and deep pockets. Some say choosing an equity financier is reminiscent of getting married-you're making yourself held responsible to this individual through thick and thin, so decide cautiously.

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Before you go investor shopping, though, you should sensibly think about just what you are promoting and what having equity investors in reality means for you and your company. Very few businesses will ever be able to release a decent return on investment (ROI) for equity investors. The archetypal 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 getting liquidity for your initial investors is low. You should be truthful with yourself regarding whether your investors expect to be remunerated.

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What about good, old-fashioned loans?

If the sheen of equity capital is stained by the reality of having to create a respectable ROI, you can fall back on the old familiar friend: a loan. The nice news as regards debt financing is that you're still entirely in charge of your company-your only duty 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 could be able to get flattering reimbursement 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.

ge business finance

In order to corroborate that you�re 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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