Places to look for a Small Business Loan.

If you have always dreamed of starting your own business, you must also be well aware that money makes a business go. But what a surprisingly large number of people planning to start their own small business enterprise dont know is that very few banks will give them loan when they have just started in business. Normal practice for most banks is to give loans only to businesses with at least some operating history.

Personal savings should be viewed as a major source of funds for starting a small business. Also, Small Business Administration (SBA) loan guarantee programs are available for start-up businesses. It always is a very good idea to have a SBA program in hand; this will make any bank happy to talk to you! We will shortly discuss SBA loan guarantee for start-ups in greater detail.

Also, other financial institutions and lending agencies also provide start up business loan for start up businesses, as well as micro loans for start up or newly established businesses. To qualify for these loans, you need to have a few resources, such as great personal credit, equity in your home or some other collateral, or you may have to sign a personal guarantee.

Importance of a good FICO score:

Any search for finance usually starts with a good credit rating. Most sources of finance and credit depend on a four letter word to determine your credit worthiness: FICO. FICO is a numeric method; it uses just three digits to predict the likelihood of you paying back your loan as per agreed terms and conditions. Lowest FICO score is 365 (credit rating not good) and the highest score is 850 (credit rating great). The score is reached after evaluating your loan repayment history, number of open accounts, your overall credit balance situation and public records such as judgments and liens. If your FICO score comes out to be above 680 then you can expect positive responses from banks. However, a FICO score below this figure will make lenders very cautious.

Obtaining a FICO score is simple; just enter FICO in a search engine. You can observe several sources which can calculate your FICO score by charging a modest fee. So remember, know your FICO score before seeking finance for your small business.

Have a detailed business plan ready before meeting any lender if you want to be taken seriously.

Another point you must analyze before seeking a loan is how much money do you need You can answer this question if and only if you have a detailed business plan with you. Only a detailed business plan can help you predict your future cash needs. Discussing the preparation of a business plan is well beyond the scope of this article, but it must be emphasized here in the strongest possible term that preparing a detailed business plan is the very first step you have to take if you want to start your own business. Most Small Business Loans are secured loans. This means you have to secure the loan by the assets of your business or your personal assets (in case you need a loan to start a new business) or both. Thus, your assets will be pledged to the lender so that the lender can secure the payment in the event of you failing to repay the loan. Collateral commonly used for these secured loans include equity in your home, inventory, your business equipment or accounts receivable. Lenders evaluation of the value of your collateral will determine how much loan it will lend you against that collateral.

Since bank loans are generally hardest to qualify for, carefully look for other avenues also to get a Small Business Loan. You will find there are quite a few of them, each having its own pros and cons. Here, we briefly discuss most of them.

You can use your personal savings, you wont have to pay any interest to anyone, but you risk landing yourself on streets in case of a loss.

You can borrow from friends and family, but if unfortunately you failed to pay, it may have an adverse impact on relationships you treasure.

You can borrow from your credit cards, but usually very small amounts.

Approaching a venture capitalist may get you a very large amount, but its very hard to convince them in the first place and you will have to share the ownership of your business.

There are various financial companies out there ready to give you loan, but they can be very picky about the collateral.

Banks generally provide least expensive loans but are also hardest to qualify for.

SBA loan guarantee programs can prove to be a great help but can turn out to be a complex process.

Thus, we can see that though there are various lenders ready to provide loan to a small business, none of them have any intention of doing it for the sake of charity. Any lender will agree to give you loan only when you will be able to convince it that you know your business well, you have planned it properly and will make every effort possible to make the business a success and repay the loan.

A quick look at US Small Business Administration (SBA) Loan Programs:

Please understand at the very outset, SBA is primarily a guarantor of loans made by private and other institutions. It offers various loan programs.

Basic 7(a) Loan Guarantee: This is SBAs primary loan program designed to assist qualified small businesses obtain loan and finance under the circumstance of they finding themselves ineligible for loans through normal lending channels. This is the most flexible of all SBAs loan programs, this program guarantees financing for a variety of general business purposes. Under this program, you can use the loan amount for purposes such as working capital requirement, machinery and equipment, land and building, furniture and fixtures, leasehold improvements etc. Through commercial lending institutions the loans are delivered.

Certified Development Company (CDC), a 504 Loan Program: Small businesses looking to acquire real estate or machinery for expansion and modernization will find this program very helpful as it provides long term, fixed rate financing.

Microloan, a 7(m) Loan Program: This program provides short term loans of up to $35,000. Its customers usually are small businesses and nonprofit child care centers and use the loan for working capital, purchase of inventory, supplies, furniture and fixtures etc. This loan is delivered through specially designated intermediary lenders, usually nonprofit organizations.

Loan Prequalification: using this program, any business applicant can get his or her loan application for amount $250,000 or less, analyzed and potentially sanctioned by SBA before it is taken to lenders for consideration.