The Best Way to Get a Business Loan

A business plan is necessary for a business loan.

The best business loan will present as little liability to you, the owner, as possible. Depending on how your loan is structured, you may be personally sued if you default on the debt. Protect yourself from the start by taking a loan out in the name of your business. Gain low interest rates by capitalizing the business with investor funds, prior to seeking a loan. Finally, you can seek a low interest loan from a traditional lender.

Things You'll Need

• Legally incorporated business
• Business plan

Instructions

Get the Best Business Loan

1. Legally incorporate your business in the state which it will operate. You can choose between a corporation or limited liability corporation. Sole proprietorships and partnerships are not legally incorporated, which means you may personally be liable for any debts accrued in your businesses name.

2. Prepare your business plan. For assistance writing a good plan, the Small Business Administration offers classes in service offices and resources on-line. The basic structure of the plan should indicate a market need for your business, profit projections and an analysis of your competitors. This will help a bank understand you are knowledgeable about your industry and likely to succeed.

3. Seek investor financing. Mezzanine investors are a good source, because they will accept equity in replace of repayment. As a result, the funds from these investors show up as positive assets rather than liabilities, on your company's balance sheets.

4. Apply for a loan with a traditional lender. Use your business plan and the financial strength of your young company to help get the best loan possible.

5. Reduce the cost of your loan through a guaranty with the Small Business Administration. Serving as insurance on your loan, this guaranty can reduce your interest rates if you qualify.

Tips & Warnings

• Veterans of the United States armed forces may qualify for a loan from the Veteran's Administration. VA loans are generally at a much lower interest rate than traditional loans; if you qualify, that is the way to go.

References

• Nolo.com: The Lowdown on Business Loans
• Minority Business Development Agency: Mezzanine Financing
• SBA.gov: Small Business Planner