How to Get a Start Up Business Loan

To obtain a loan successfully, you must understand the company's financial needs. Start-up businesses usually secure financing to begin or expand operations, such as to purchase supplies and equipment. With adequate funding, businesses increase chances for survival.

Instructions

1. Estimate all initial costs, which might include office space, utilities, permits, filing fees and inventory. Businesses have several unique expenses based on industry. If you are starting a web-based business, then you should gauge the cost of creating and maintaining a website (e.g., hosting fee). A restaurant might invest heavily in kitchen equipment and food supplies, while a consulting firm might spend money to attract top talent.

2. Create an accurate, detailed business plan that describes how you will make money. Your goal should include demonstrating how investors will realize returns. Analyze multiple factors, such as competition, cost per unit and minimum revenue requirements. By understanding your break even point (sales minus expenses equal 0), you will be able to establish critical goals.

3. Determine appropriate financing sources. Businesses have turned to banks, family members, friends, angel investors, microlenders and venture capitalists for financing; however, every source will not extend credit to all businesses. Relevant factors involve your company's ability to repay the loan, credit history and available collateral. An alternative source is a government grant; though most grants are not loans, rather they provide funding in return for services.

4. Present well-prepared pitches. Schedule meetings with potential financing sources and persuade them to extend credit. Tailor presentations to your audience, as a pitch made to a banker usually carries a different tone than pitches made to friends and family members. You might encounter investors who will provide money in exchange for equity or ownership in your business. Remember that whoever holds more than 50 percent equity has majority control.

5. Evaluate your results--avoid making decisions hastily. For instance, while you might be satisfied with an offer of $10,000 at 7 percent annual interest, you could ask how the interest rate was determined. Then, calmly negotiate with the lender to decrease the rate, such as by highlighting objective facts, such as your industry experience or decent credit history.

Tips & Warnings

• Differentiate yourself and your business. There always are other start-up entrepreneurs who are searching for investors. Research your ideal customers and assess their spending behavior; however, do not define customers too narrowly.

• Consult with an experienced accountant and attorney to minimize your financial and legal exposure.

References

• Small Business Administration
• Microloans