Compounding the many issues a new business owner must face is the reality that there will be a need for loans. Securing business loans is practically inevitable for most businesses, and in every case, it takes careful preparation. Becoming aware of the various sources from which a new business might receive working capital is a good idea in becoming better prepared when a working capital need arises.
The following are some of the more common places a new business might find loans or other forms of working capital:
- Angel Investors: Angel investors might work alone or in groups. There are angels that are specific to industries, regions, and other specific characteristics. An angel investor will typically invest in a business idea, and it is not uncommon for the angel (or angel group) to appoint a representative to the small business in some capacity. The details of each investment will likely be unique in many ways – though there are organizations to help you find the right investor group for your small business ideas. For more information, on either finding an angel investor or becoming one, visit: http://www.angelgroupnetwork.com/ and other similar resources on the web.
- Friends & Family: Perhaps one of the most common ways a small business gets started; loans from friends and family members can have both pros and cons. Some of the pros include the fact that you can usually get very favorable, flexible terms from a family member or a friend. You should no doubt be able to arrange a reasonable percentage, but it will often be substantially lower than a commercial loan would be. If you miss a payment, it is not going to have any effect on your credit report. However – this is also one of the risks in getting money from friends or family for a business purpose. Because financial transactions are not typically the foundation for any meaningfully close relationships, a loan can certainly change the dynamic in a negative way. If entering into a transaction with a friend or family member, it is important to handle it like a business every step of the way. The terms may be lenient and gracious, but they should still be spelled-out carefully, agreed upon and respected by both engaging parties. Friends & Family business loans are a great idea when they are entered into soberly by both parties, and there is a legally sound agreement signed and understood. Here’s some additional information, found on Entrepreneur.com: http://www.entrepreneur.com/financing/loansfromfriendsandfamily/archive115852.html
- The SBA: The Small Business Administration (SBA) does not actually provide business loans. Instead, they subsidize the providers of specifically covered small business loans, through special programs – the most common for new businesses, being the 7(a), or Microloan Programs. New businesses might be able to qualify for a variety of SBA programs, depending on various specifics. For example, there will be state-based programs, there will be industry-specific programs, and more. The best way to find out what the SBA might be able to offer your new business idea, is to visit the website, and research some of the programs. If you are US-based, look into potential state-based programs. Reach out, and ask for guidance. http://www.sba.gov/financialassistance/borrowers/guaranteed/
- Other Government Programs: There are typically a variety of government programs in place to help specific small business owners find greater success. One recent example would be the Import Export Initiative signed by Barack Obama in early 2010. While the passing of this initiative and its resulting programs will not affect every small business, for those in the importing business, a new business loan of a specific variety might be easier to arrange through this program. For more on the new initiative, visit: http://www.export.gov/
While these are not the only means for a business owner to find capital, they are among the most common.
Time Matters: and It Does Get Easier
It is important to note, that once the business is open for a while, the chances for getting new business loans tend to increase. Once you move beyond start-up loans, there will be ongoing needs for working capital and these needs can be met in different ways. The business being operational will open new possibilities to evaluate.
A business that is still within its first year is typically going to be considered a “new” business. However, once a cash flow and business pattern is established, options like factoring invoices, merchant cash advances, leasing and other solutions might become available.
Defining “new” in reference to your business loan may determine how difficult it is for you to obtain. The newer the business, the more likely other strength-building and trust-inducing factors (credit score, etc.) will be necessary to receive competitive rates.
A strong business plan, adequate collateral and available liquid capital with a solid credit history will also make things infinitely easier for you. The less you have of any one of these factors, the more you will need to build –up the others to balance your efforts.
The unfortunate truth is that securing a new business loan is rarely going to be easy, but it is common. By using the ideas mentioned here, you should have a better idea on where you can start your search for the simplest and most beneficial opportunities.
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