Rabu, 09 Juli 2014

Small Business Loans - a Primer

An entrepreneur is always hidden somewhere at the back of your mind. In anticipation of this, you have been tucking away some cash since long. Now you have come up with this great business idea whose time has come. However, you need more cash than you currently have to make a success of your venture.

This is when you need to explore small business loans. Small business loans are granted to start ups and small businesses that want to expand. While it is easier for a small business that has been around for three or more years to obtain a loan, a startup is always a different issue.

Bankers and other lenders, are typically averse to lending to start ups. This is because a majority of start ups fail before the first five years. Also, a start up has to financial history for the banker to look into. To convince the lender that your venture will succeed you need to first invest your money in the start up. Think of it as the down payment for a house. When you are looking for small business financing, it is best to approach the Small Business Administration first. Even if they are unable to finance your start up, they will be able to underwrite your loan, enabling you to get much better terms from your banker.
Yet another fairly easy way of obtaining finance is to apply for a merchant cash advance. Her too you need to meet certain criteria such as the ability and willingness to repay. You need to show sufficient daily receipts or projected receipts to obtain this kind of finance.

One of the most successful ways of obtaining small business loans is to let your banker know that you have sufficient belief in your business idea by investing personal funds in the business. This will convince the lender to release small business credit for your venture. If the lender is aware that you are investing your time and expertise as well as your money in the venture, they are more likely to consider your application for small business lending in a positive manner.

Obtaining a business credit line is no easy task as the norms for such lending are very strict. One way of reassuring the lender that their risk is minimal is to offer collateral in the form of real estate o r machinery. You will still need to show that the business will generate sufficient cash flow to repay the loans comfortably, but collateral helps ease the lenders qualms.

When applying for small business loans, the borrower needs to convince the lender of both their ability and willingness to repay the loans. For this, mere verbal assurances are not enough. You need to back up your assurances with data that shows that your business will generate adequate cash flow. Your credit ratings too need to be good, as this will be a clear indicator of your willingness to repay loans on time.





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