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On the whole entrepreneurs must borrow capital at some stage. The good news is, at hand there are many distinct business finance programs. Sorry to say, that is additionally the adverse news. In other words, the money's at hand, but it can be bewildering to determine which business loans to apply for, chiefly for the reason that many business loans fund certain things.

When it comes to the financing popularity contest, equity funding is currently in fashion. Stories in the mainstream media about venture capital have glamorized the concept of selling stock in your startup, and entrepreneurs across the world would a large amount have a preference to raise capital in the form of equity more willingly than debt.

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Equity is so appealing as it feels like you are getting free capital during the startup period. There are by and large no compensation obligations and no interest payments due to equity investors. You'll moreover have some say in negotiating the outlay of your stock, any dividend payments and the rank the investor will have in your business. If your business goes belly-up, it is their loss (unless, of course, your investors can corroborate in court that you did not divulge serious information that would have influenced their decision to invest).

As well as providing funding, equity investors can be supportive in other ways as well. They pass their business experience 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 business, 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 choose wisely.

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Before you go investor shopping, though, you should assiduously reflect upon just what you're selling 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 boast a high-growth tech business, the possibility of accomplishing liquidity for your first investors is low. You should be honest with yourself regarding whether your investors expect to be paid back.

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What about good, old-fashioned loans?

If the gloss of equity capital is tarnished by the reality of having to make a respectable ROI, you can fall back on a loan. The pleasant news concerning debt financing is that you're still completely in charge of your company-your only 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 intervene in your business. Interest payments are typically a deductible business cost, and if your lender is someone you know well, you may perhaps be able to get favorable 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.

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In order to corroborate 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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