Small Business Funding Options | How to qualify for a small business loan

Not everyone can or will qualify for traditional business loans or lines of credit, and most do not have tens of thousands of dollars at their disposal to start the business of their dreams. Do not be discouraged. There are many options that may fit into your budget and help you achieve your personal, professional, financial and lifestyle goals. If you do not have equity in a home, some type of retirement savings, stocks, or other savings, you may want to look at my >>>recommendations page<<< There are opportunities there to meet almost any budget that are great alternatives to franchises, traditional businesses, or a start up business.

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There are many ways to finance a new business. In this article, I will discribe the most common funding stratagies people consider for starting or buying an existing business. This will help you understand all your small business funding options, how to qualify for a small business loan, and how much you can qualify for so you can make an informed and responsible decision. It is a good idea to know your financial parameters and funding options before setting out to find your dream franchise, established business or business opportunity. 

Knowing how much you can invest of your own money, and how much you may be able to obtain from other resources is essential when selecting franchises or other businesses to consider. You do not want to spend a bunch of time evaluating franchises and other business opportunities, get excited about something then learn it is beyond your financial reach. The number one reason most new businesses fail is from underestimating the true cost to start and run the business long enough to break-even.

Below are some traditional business funding options with a brief description of each.

Franchise speciffic: franchisors are more inclined to engage seriously with you if they know you have done your homework to understand your financial capabilities and the financial requirements of their franchise, for they know that they are talking with someone that is serious about the process and qualified financially should there be a mutual interest and a match in skill sets, values and culture. 

Franchisors get hundreds of inquiries weekly and they have to choose who they are going to talk with each day. They want to spend their time talking with qualified people even if in the end they decide it is not a fit, so when they see you have taken the time to know their financial requirements and are pre-qualified with a lender, you will be at the top of their priority list to have an initial discussion to determine if there is a mutual interest in a second conversation.  

Once you know how much you can afford to invest and how much you can obtain from other resources, you can focus on finding franchises and other opportunities that fall within your financial guidlines. This will save you a great deal of time when selecting franchises and businesses to evaluate more closely to determine if any of them have the components to help you achieve your goals. 

Get a Free Copy of  “Innovative Funding Strategies for Entrepreneurs”, Connect with a Preferred Lender or use the funding tool to find out how much you may qualify for and get  Pre-Qualified CLICK HE

 

Options for funding your new business:

 Cash.  This is one of the easiest methods to fund your new venture for obvious reasons. However may not always be the best option even if you have access to all the liquid capital you need to start and run a new business. One positive is there are no loans to pay back and it helps with the cash flow of your business as you get started.  If you have all the money you need in liquid or semi-liquid assets, cash, stocks, home equity, etc. to start a business as well as run it to the break-even point, you might self-fund your new business. Be sure to weight the “cost” of tying up your capital and compare that to the “hard cost” of another type of business financing.

Bank Loan. One easy way to borrow money is to set up a line of credit at a bank. This option only works if you have sufficient personal collateral to secure a loan for the amount you need and this collateral is usually in the form of home equity. Banks require collateral on most loans because they will want recovery if you default on the loan. This is true whether your business is a corporation or any other type of entity. Besides giving banks a way to recoup a loss, when you have personal collateral on the line the bank will be more willing to award a line of credit knowing that you will want to work hard to protect your own investment as well as theirs.

Debt Financing is a loan from a financial institution. The usual sources are banks or commercial finance companies. Another great resource is to access the programs available through the U.S. Small Business Administration (SBA). You should make yourself familiar with the SBA’s Web site (www.sba.gov/) as it has information on small business financing options and also explains how to write a loan proposal. If you do decide to borrow money, remember that lending institutions will require you to have a certain percent of the total loan amount in liquid capital as a down-payment for a part of your business start-up costs.

Small businesses are an important part of our economy, the government has established through the SBA, its own loan program, the Small Business Investment Company Program (SBIC). The SBA does not make the loans, they are primarily a guarantor of the loans made by lending institutions. For a Free Download about the different SBA loans and a list of approved lenders visit my Business Funding Options Page 

Equity Financing. Equity financing requires that you sell someone an ownership interest in your business in exchange for capital. Investors may be friends, relatives or employees or they may be professional investors, generally knows as Venture Capitalists.  Attracting venture capitalists to help you purchase a franchise may be difficult, as they are usually more interested in companies with great potential rather than a single unit/multi-unit/territory based start-up franchise.

Retirement Accounts. If you have an IRA, 401k or other retirement saving accounts, you may be able to use that money to help invest in a business. There are companies that specialize in (ROBS) retirement funds Roll Over to Start a Business. By working with a financial advisor from one of the companies provided above, you can set up an account that allows you to use retirement funds for starting your new franchise or other business without incurring penalties or paying taxes on the distribution of funds. Essentially you are investing in yourself and saving the debt you’d incur by taking out a loan. As your business becomes profitable, your retirement account will also realize gains, tax deferred. This has proven to be possibly the best way to fund a business. There are statistics showing a higher rate off success when starting a business using retirement funds. There is one more advantage to using any portion of retirement funds to start your business, your financial assets are shielded and not subject to capital gains when you sell your business. However to do this, you need to work with a company that understands all of the laws and guidelines so your company is structured properly and maintained to stay compliant. Visit my Business Funding Options Page for a detailed FREE DOWNLOAD of 401(k)IRA roll over funding  and a list of approved lenders. Benetrends Financial was the first company to offer this program over 30 years ago. They are by far the leader and experts, and their Rainmaker garentee, states that if you follow certain terms and conditions, Benetrends will protect your plan in the rare case there is an inquery or audit from the IRS or Department of Labor. 

Franchisor or business seller Financing. Some franchisors or business opportunities have internal funding options, or they work directly with financial companies to provide loans for new and existing franchisees or business partners, often at low interest rates. This may be a good option if you can qualify for the financing.

Partners, Friends and Relatives. If your friends and relatives have confidence in your entrepreneurial abilities they may be willing to help you fund your business venture. Private loans are often provided at a low interest rate which can be helpful as you get started. You may also consider a partner to help finance and run a business. This can be a good idea if you are lacking some business skills or experience. Often times partners compliment each other creating a perfect synergy, for example when one is a dynamic cold caller and the other can handle the employees and customer service aspects.

Credit Cards. Because of high interest rates and low credit limits, credit cards are usually not the best place to look for money when financing a business. It may take many months before your new business is making money and the last thing you want to do is hurt your credit rating by borrowing money you can’t easily repay. Plus, the monthly finance charge can add significant costs to your overall investment. A better use for your credit cards would be to save them for emergencies. Some opportunities may have a relitively low cost to start. If this is the case using a credit card or two to get going might be on ok option.

This brings us to a critical point – How to qualify for a small business loan. Your credit history will be a major deciding factor lenders will be looking at closely to decide if you qualify or not for a small business loan. Lenders want to see consistency in credit history including borrowing money and making payments on time and credit utilization at or below 1/3 of your total credit availability. 

The best way to qualify for your new business financing is to first make sure your credit is in good health, you want a score of no less than 680, but over 700 is best. Sometimes there are exceptions if the franchisor or business owner is doing the financing and they believe in your abilities based on your background. You need to be very thorough, organized and prepared. Lenders will want to see your loan proposal which includes how and what the loan will be used for and why it is needed. You will need to provide information about yourself, including education, experience and accomplishments. Information about your company’s products and the market you will serve will also be considered. The more research you have done, the better prepared you will be to find financing for your new franchise or business opportunity.

To get a generalized pre approval for business financing, you will not need to know all of the information I mentioned above, that will come after you have an idea of how much you are able to qualify for which will help you understand what businesses and franchises you can look at. Once you have made a decision on a specific franchise or other opportuniyty that falls within the parameters of your pre-approval, then you will need to submit the detailed information for a final approval. Most  top franchises are registered with and approved by the SBA which will make life much easier. This allows you to use the franchisors business plan so you do not have to create one from scratch.

To sum it up, before investing a great deal of time requesting information on different franchises or other business opportunities and getting excited about anything, you should look over your current financial situation and talk with a financial advisor to understand all of your funding options so you can focus at looking at opportunities that make sense.

For FREE DOWNLOADS of detailed funding options, a list of approved lenders, and to pre-qualify for funding, visit my >>>Business Funding Options page HERE<<<  

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