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Nearly all entrepreneurs need to have access to funds at some instant. The good news is, there are several different business loan programs. Sorry to say, that is also the sorry news. In other words, the funds are at hand, nevertheless it can be baffling to elect which business loans to submit an application for, chiefly for the reason that several business loans finance particular things.

As soon as it comes to the financing popularity contest, equity funding is at present in fashion. Articles in the mainstream media about venture capital have glamorized the concept of selling stock in your startup, and entrepreneurs across the board would to a great extent favor to create capital 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 throughout the startup period. There are ordinarily no compensation obligations and no interest payments owed to equity investors. You will as well have some input in negotiating the price of your stock, any dividend payments and the status the investor will have in your business. If your business goes belly-up, it is their loss (unless, of course, your investors can establish in court that you didn't divulge essential information that would have influenced their decision to invest).

Likewise providing funding, equity investors can be supportive in other ways as well. They bring in their business knowledge and lessons learned to bear on your company, plus they can turn out to be a board member. The greatest equity investors are individuals with knowledge in your industry, experience launching a business, a cool character and deep pockets. Some say choosing an equity investor is comparable getting married-you're making yourself responsible to this individual through thick and thin, so select sensibly.

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Before you go investor shopping, though, you ought to prudently think about just what you're promoting and what having equity investors in truth means for you and your business. Very few businesses will ever be able to release a good return on investment (ROI) for equity investors. The conventional restaurant or retail store, for example, is not likely to have any liquidity for its shares. And even if you plan to have a high-growth tech business, the likelihood of getting 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 marked by the realism of having to generate a respectable ROI, you can fall back on a loan. The nice news about debt financing is that you are in spite of everything entirely in charge of your business-your single 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 cost, and if your lender is someone you know well, you may be able to get helpful 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.

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In order to provide evidence that you�re 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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