In our last couple posts, we’ve discussed considerations for funding your own venture and for reaching out to “family, friends and fools” to get your startup off the ground. Great options for some, but what if you don’t have a trust fund or a rich uncle? The bank is a logical next step, but not all loans are created equally. This time we’ll take a look at three standard options for bank loans and what you’ll need to secure them.
Microloans
+ What it Gives You: This is just what it sounds like: a small sum of cash provided by a public or private lending institution. This amount could range anywhere between $5,000 — $50,000, and can cover any business need you might have.
+ What it Takes: Though less stringent than many other types of loans, requirements will likely include a high credit rating and a specific amount of tangible assets available for collateral.
Small Business Administration Loans
+ What it Gives You: An SBA Loan (7a, 504, etc.) is arranged through the Federal government, and *guarantees* some degree of funding to any small business through a traditional lending institution — often at very good interest rates.
+ What it Takes: Above all, time! Since these loans are guaranteed, you won’t be turned away — but you might be turned off by the wait. Depending on your situation, the lengthy application process may take longer than you (or your business) can stand.
Equipment Loans
+ What it Gives You: When the money you borrow is going directly toward something that can be “collateralized,” your loan is seen as less risky to the bank, so they can afford to offer you more. Equipment loans can range in the Millions of dollars in some cases.
+ What it Takes: Collateral is an obvious priority here, but due to the large sums of money changing hands, that’s not all. Requirements typically include excellent credit, capital for a down-payment, a solid business plan and a proven track record.
Making Your Decision
The most important thing to consider in your search for a bank-backed loan is that the bank is in the business of avoiding risk. The more evidence you can present to make your business a safe “bet,” the easier it will be for the bank to approve your loan. So the question is this: what sort of evidence you can produce — and how much?
Tags: Finance, loans, small business
