Getting things going with a small business startup loan!

Getting a bank to prove a loan for your start up small business can be a pretty difficult task. If you go to most local banks, you will find that they quickly will tell you that they don't approve small businesses with less than two years time business. This be a frustrating experience for any small business owner. After all, if you can't get the loan to start up your business how can you ever get your business off the ground.

There are a few different ways that you can find your startup expenses for your small business. The most popular way is to simply borrow money from family members. I know that this is something that most people want to avoid, but it is the most common way that small business owners can get started with their business. I can remember one of my small business customers telling me that their first loan came from their father-in-law. And that they were scared to death that they wouldn't be able to pay the loan back. It turns out that this particular customer did not want to disappoint his father-in-law so he made sure that that loan was the first thing that he did when he made money on his first jobs. Now, I don't think it's realistic or practical to go to your family for a large purchase. This should be for basic startup expenses just to get your business off the ground. Not for building purchases or large equipment purchases. The fact is, is that you should be very conservative with how much you borrow in your first two years. Anyway, by taking on too much debt in your first two years of business it will likely put you at a disadvantage when you go for your first bank loan.

Another very popular when at raising money for your small business is to take out a home equity loan. This is in fact, the only way that a small business banks might approve your loan request. Many local banks are willing to give you a small business loan, while using your personal residence as collateral. This make sense from the bank's perspective for a few reasons. Many times a small business startup loan is used to convert purchase tools, equipment or raw materials, which don't hold their value and if collateral doesn't hold value that means its less valuable to the bank. Another reason that banks will look to your home for collateral is somewhat psychological. They want to make sure that you are as invested in your small business is they as they are going to be when they make your first loan.

A lot of small business owners will say that they want to keep their personal finances in their business finances completely separate. While I understand where they are coming from, we need to go into a little bit of background and how your will eventually look at your loan request will small business owners will say that they would like to build up their business credit from the banks perspective. There really isn't anything such as 'business credit' even though the term gets thrown around quite a bit. The bank will simply will look at your past two to three years business financial statements and determine whether or not it's your business would be able to make the proposed loans payment. There isn't anything similar to a consumer credit report that a bank would look at to determine if you are 'loan worthy'. Whether you got your startup capital from credit card debt, a home-equity loan, or from another bank and would all be the same from the bank's perspective. That is why I recommend using the equity in your home for either a commercial loan secured by your home-equity or for a traditional home-equity loan. Typically, a home-equity loan is much easier to get approved and the fees are generally lower.

Just to touch on a few different alternative options. There are some finance companies, which will lend money for your small business, but the cost is usually a much higher interest rate. You could also look to business credit cards or unsecured loans. But again, these are meant for short-term financing, and not necessarily something that you would want to string out over multiple years.

Hopefully this will give you some idea on how you can successfully finance the start up of your small business.