Small Business Loan Basics

Small Business Loan Basics

By Joseph Kenny

Many people who wish to start their own business need an injection of financial capital at the beginning of a business; the main source of funding for entrepreneurs is business loans.

Let’s take a look at what you should expect if you plan to apply for one.

First of all, you should know that most lenders have their doubts when it comes to lending money to a first-time business owner. You’re considered a high business risk at this point, and you should go in to your loan negotiations armed with a few advantages. Of course, the ideal option is to run your business for a few years, even just out of your home, and turn a good profit before approaching a bank for a loan.

That shows that you have the ability to make money and that your business won’t flop before the Open sign shows up on the door. But if this isn’t possible, if you need the cash before you can begin at all, then chances are you will need to offer some type of collateral. Collateral can be anything from your car to your home and everything in between. Depending on the size of the loan, you may require some pretty hard assets for collateral. The lender is not interested in whether or not your business will make money, aside from the extent that will allow you to pay them back on time. They simply don’t want to lose out on the loan, and so you’ll have to find some way to back yourself up.

Backing up your loan with assets, if you have them, is a good route – provided you have enough confidence in your financial situation to ensure you are not going to lose your collateral. If you don’t have enough assets to stand in for your loan, another option is to find a cosigner. Chances are you won’t get as much cash as you would if you had the assets. But having someone with good credit who is willing to sign onto your loan and promise to pay if you don’t can be the factor that gets you through the door. This is a good way for friends and family who believe in your business to help you get it off the ground, even if they don’t have the money to loan you up front.

When it’s time to borrow, do some comparison-shopping among banks and credit associations, and don’t stop until you find the lowest interest rate possible. You’re already gambling a lot here- minimize the amount you will have to pay back by doing your homework and choosing the company that offers you the best deal. If you can’t get enough to cover your beginning business expenses, consider borrowing part of the cash from a friend or relative if you can, or even asking for investors, such as customers who believe in your business, to help out. Don’t accept a high-rate, high-risk business loan just because it offers you the biggest amount.

The small business loan: The first step in a long chain of financial events. If you take the right step, it could be your leap into the business world.

About the Author: Joseph Kenny is the webmaster of the loan information sites http://www.selectloans.co.uk/ and also http://www.ukpersonalloanstore.co.uk. At the Personal Loan Store you can find all the different loan types explained.

Source: www.isnare.com

Are you spending too much on advertising? Stop doing that right now. Schedule a coaching session with Frugal Solutions Expert, DeAnna Spencer. She will design an affordable online advertising plan for you. Contact her by sending an email to deanna.spencer(at)gmail.com Visit her website at www.learnsmallbusiness.com for more information.

Loans For Self Employed

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Loans For Self-Employed

By Joseph Kenny

One of the most fundamental details that all banks will look for in all loan applicants is a steady, dependable income. The amount of this income will decide how much the applicant will be granted. If there were no dependable income, then on the face of it, it would appear to a lender’s calculation, that the loan amount should be zero. This is the traditional method of calculating personal loans.

Self Employed Business Loans

Business loans are calculated on a different basis. They do not need to show guaranteed income. In fact to do so would be impossible for most business. So banks came up with an alternative way of calculating business credit worthiness. This involved assessing past earnings, assets, debt and liabilities. A similar model is now in place for self-employed loan applicants. Instead of showing them evidence of your salary, you can instead show the bank what business you’re in, how much you’ve been earning and for how long, how the business is likely to continue and current debts and liabilities. All of this information will then go into assessing your income, your risk, and how much you can afford to borrow.

Difficulties Being Self Employed

There are still some difficulties involved in borrowing for the unemployed. For example, if you haven’t been in business for very long, it will again become difficult for lenders to assess your level of risk. Usually they can get a pretty accurate picture of what your earnings are going to be by looking at the amounts of previous years. If the income has been steadily increasing or decreasing, they may wish to take this trend into account but basically, they will be assuming that you continue on as you have been trading thus far. This becomes impossible if your business is very new. There will be no trading record or past earnings to rely on.

Another difficulty that you will face is that many lenders may still treat the self-employed as a greater risk than traditionally employed. It is a simple fact that new business fail more often than more established businesses. They also fail more often then lay-offs occur. So the risk may still be treated as greater and this will be indicated in the terms and interest rates you receive.

The Future

All this seems to be changing as employed people switch from job to job more frequently than before. This makes them less reliable, and the self employed are gaining a reputation as good borrowers, the rates you receive should begin to get closer and closer to those of salaried applicants.

About the Author: Joseph Kenny is the webmaster of the loan information sites http://www.selectloans.co.uk/ and also http://www.ukpersonalloanstore.co.uk. At the Personal Loan Store you can find some of the latest personal loans explained in detail.

Source: www.isnare.com

Are you spending too much on internet advertising?  Stop.  Schedule a
coaching session with DeAnna Spencer today.  She will help you save
money on internet advertising.  Contact her today by sending an email
to deanna.spencer(at)gmail.com Just replace the (at) with the at
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