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Nearly all entrepreneurs have to have access to funds at some moment. The good news is, at present there are a lot of different business finance programs. Unfortunately, that is additionally the bad news. In other words, the money's out there, but it can be baffling to elect which business loans to submit an application for, particularly for the reason that several business loans fund particular things.

When it comes to the financing popularity contest, equity funding is presently in fashion. Articles in the mainstream media about venture capital have glamorized the idea of selling stock in your startup, and entrepreneurs across the board would a large amount wish to create cash in the form of equity more readily than debt.

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Why is equity so appealing? Because it feels like you are in receipt of free capital during the startup stage. There are usually no reimbursement obligations and no interest payments owing to equity investors. You'll moreover have some shout in negotiating the outlay of your stock, any dividend payments and the rank the backer will have in your business. If your company goes belly-up, it is their loss (unless, of course, your investors can attest in court that you did not unveil crucial information that would have influenced their decision to invest).

In addition to providing funding, equity investors can be effective in extra ways as well. They bring their business knowledge and lessons learned to bear on your company, moreover they can become a mentor. The greatest equity investors are those with knowledge in your business, know-how of launching a business, a cool personality and deep pockets. Some say choosing an equity investor is similar getting married-you are making yourself responsible to this person through thick and thin, so choose sensibly.

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Before you go investor shopping, though, you should carefully reflect upon just what you're promoting and what having equity investors really 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 instance, is unlikely to have any liquidity for its shares. And even if you plan to carry out a high-growth tech business, the possibility of getting liquidity for your first investors is low. You should 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 sheen of equity capital is stained by the realism of having to create a respectable return on investment, you can fall back on a loan. The nice news with reference to debt financing is that you're in spite of everything 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 pry in your business. Interest payments are typically a deductible business outlay, and if your lender is someone you know well, you may be able to get flattering settlement 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 show that you are 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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