Need A Loan For Your Home Business?
by James Calvin
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.
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.
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.
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.
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.
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
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