Commercial bank loans don't require entrepreneurs to turn over equity or company control. In general, banks prefer to make loans of more than $10,000. Banks like to see:
- Good personal credit
- A solid business plan
- Ability to repay the loan
Once you've determined that an Small Business Administration (SBA) or traditional bank loan is the right kind of financing for your business, you'll need to package your financial information in a way that makes it easy for a banker to make a favorable decision. At the most basic level, you will need to provide:
- Basic information about your business
- Basic information about the loan you are requesting
- Financial information about your business
We highly recommend that you work with the Loudoun Small Business Development Center at MEC. The SBDC is skilled in helping business owners prepare themselves to approach funding sources.
Types of Loans
Line of Credit is an arrangement in which a bank extends a specified amount of credit to a specified borrower for a specified time period. A line of credit is best suited to help cover expenses that tend to fluctuate throughout the course of a year.
Home equity loans are a cost-effective alternative to other types of loans because they offer good interest rates available. But you may not want to risk your family home to launch your business venture.
Equipment lease financing gives you access too many types of equipment: computers, copiers, vehicles, etc. without tying up your cash or credit lines. Although it doesn't bring in cash, leasing reduces the amount of cash you otherwise have to raise to start.
Cash advances from credit cards are an easy and quick way to gain access to cash. But as a long-term financing method, they can be expensive-- credit card interest rates typically run much higher than rates you would likely pay on a bank loan.
Factoring allows a company to "sell" its accounts receivables to an outside company at a discounted rate. This allows the company to receive funds immediately to fund operations and ease cash flow. This is common for government contracts.