September 6, 2007

How to Finance a Small Business

Posted by: admin @ 2:03 pm

Money is the biggest obstacle when trying to start a small business. Many people have the drive, knowledge, and an ideal; however without working capital, their dream never materializes. There are several ways to finance a business. Some put their dream on hold when they are unable to secure funds for a start-up business. Banks rarely finance start-up companies. This is because the risks are too high. However, the chances of getting bank financing increases if the business is established. In other words, it may be ideal to start a business in the home. Once the business is receiving profits, banks may be willing to finance the expansion.

Prior to securing financing, future business owners need to obtain a copy of their credit report and outline a business plan. Financial institutes rarely finance businesses when an owner has terrible credit, nor will they finance an ideal. Banks need to feel confident that the loan will be repaid otherwise they will not trust you to borrow money from them. Banks may not rule out a loan based on minor credit problems; however several loans and credit cards that are past due or in collection status give the impression that a person is not creditworthy.

Business plans are designed to outline a company’s objection and financial plans. This is another way to make potential lenders feel comfortable that the loan will be repaid. Business owners with acceptable credit and a business plan can approach banks and other lenders for financing. Small Business Administrations are located in all states. This company will finance small businesses; however they require business owners to have capital to secure the loans. Individuals who own a home or vehicle may qualify for this type of financing.

Securing a personal loan or receiving an increase on credit card limits is also a great way to finance a business. In most cases, these options are only available to individuals with good credit. Those with poor credit can receive financing through private lenders and investors. These lenders are willing to finance small businesses; unfortunately the interest rate is considerably higher than banks. Business owners who receive financing through private lenders should work to pay off the loan early.

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