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Home Business Loans
Very few people can afford to start a business using nothing but
the money they've got lying around in their bank accounts. For
most of us, we're going to need to get a loan before we'd have
anywhere near enough money to invest in starting up.
Standard Loan Uses
# The purchase of real estate to house the business #
Construction, renovation or leasehold improvements # To purchase
furniture, fixtures, machinery, or equipment # For the flooring
of inventory and for working capital
Your Credit History
You might not have realised that your credit history was going
to count here, but it does. This is where all those late credit
card payments come back to bite you. The better your credit
history, the more likely a bank is to lend you money, and the
better the rate it offers will be.
Bank Loans
Banks usually have someone whose job it is to go through
applications for business loans. These people have seen a
thousand business plans, and they know what they're looking for.
Take along all your plans and any other supporting material you
can put together. Make sure you present yourself at your most
professional. Act like the most sensible and level-headed person
you've ever met. This is, essentially, a job interview: the bank
is interviewing you and your business to try and figure out
whether it would be a safe place to put their money. Remember
that they're just like every investor, lending you money with
the expectation that they will get it back, plus interest.
Secured Loans
Of course, you'll probably have a much easier time persuading a
bank to lend you money if you put up something of your own as
collateral in case you can't pay the debt back. Some dodgy banks
would really like you to secure your business loan on your
house, since they know that the failure rate of start-ups is
high and they'd really like to get their hands on it. Be
cautious, in case you sign your life away. It is almost never
worth starting a business if you can only get secured loans -
you're tying the business' fortunes too closely to your own.
Government Loans
As part of the push to support small businesses, there are now
many government bodies that will offer no-interest or
low-interest loans to small businesses, a category which
includes home businesses. The government lot will obviously be
even more picky about your business plan, but it's still a good
option to have available to you. Even better, these loans will
often come with free help and advice from the agency that issues
them, as well as all sorts of booklets and leaflets telling you
the technical details of getting started.
Credit Cards and Overdrafts
These forms of debt are a very bad idea. Whatever you do, do not
finance your business with personal debt. You'll have to make a
massive profit just to pay back your debts, and it's unlikely
that you'll manage to both pay them off and have enough money to
live. If you can't get a loan, try to find other investors
instead.
Friends and Family
Friends and family can be a surprisingly good source of loans to
help start businesses, especially if they're in the same
industry themselves - they'll be more than happy to help you get
a foot on the ladder. You might be able to persuade someone to
give you the money at a good rate of interest, or even to act as
a 'sleeping partner', financing half of everything while leaving
you to run it all.
Be aware, though, that many friendships and families have been
ruined by failed businesses. I had a friend who went around
raising thousands from everyone he could think of to start a
magazine of his own, only for it to crash and burn by the second
issue. Be warned.
Keep Trying
If you get turned down for a loan, keep trying (preferably at
different banks!) You should revise your business plan each
time, and try to get as many people as possible to read it - the
more people who see it, the more ideas and suggestions you can
hear. If your credit rating is fine, then the problem has to be
with the business plan: fix it, and you're set. Good luck.
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