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Start Up Business Loan: How to Get One
Reduce the Risk Involved
Any time you are looking for a loan to start a business you have to put yourself in the shoes of person or financial institution from which you are seeking money. Because most startups have a high likelihood of failure within their first two years, anyone person or place that may supply money to a startup is going to be looking at the risks involved in providing that loan. Loan providers want to know all potential risks and all potential opportunities involved in the business so as to ensure that they will their money back with interest.
How do you alleviate the risk involved? Two ways: either through a Private Placement Memorandum (PPM) if you are looking at obtaining equity financing whereby the investor is acquiring shares of the company; or through a business plan, which comprehensively covers all the necessary trends, risks, and growth strategies applicable to the start up business. Furthermore, most financial institutions providing a business loan are going to require personal financial statements and potentially a list of assets such as home, condo, etc. that can be used as collateral for the loan.
Know Your Source
Start up business loans can come from friends, family, angel investors, venture capitalists, private equity firms, or banks. Know these source(s) very well because the people or groups that you are going after to obtain a loan is going to determine the amount of work done upfront in regards to risk alleviation.
In most cases friends and family are likely to provide loans out of support for the entrepreneur and are less-likely to nit-pick and scrutinize minute details.
Contrastingly, angel investors, venture capitalist and private equity firms are going to be less worried about your personal financial statements or whether you own your house, and more interested in how they can make money, normally multiple times their original invested sum, from this investment.
Lastly, banks are less-likely to concentrate on any huge exit opportunities and more likely to focus on personal financial statements, credit history, previous business financial statements, and anything that will ensure them that the loan will not be defaulted.
Ask for Help
Obtaining a business loan can be very difficult and chances are that you are going to be denied plenty of times before you are successful. This is the inherent challenge in obtaining a loan for a startup business; it is risky and people or financial institutions know that. As a result, do not be afraid to ask your local Small Business Administration (SBA) for help regarding small business loans. Moreover, there are many foundations and consulting firms that can provide advice and additional resources and can be great in helping the entrepreneur feel more comfortable with the process.
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