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Getting Loans for Your Home
Business
Very few people can afford to start a business using nothing
but the money they've got lying around in their bank accounts.
For most of us, we're going to need to get a loan before we'd
have anywhere near enough money to invest in starting up.
Your Credit History
You might not have realised that your credit history was going
to count here, but it does. This is where all those late credit
card payments come back to bite you. The better your credit
history, the more likely a bank is to lend you money, and the
better the rate it offers will be.
Bank Loans
Banks usually have someone whose job it is to go through
applications for business loans. These people have seen a
thousand business plans, and they know what they're looking
for.
Take along all your plans and any other supporting material you
can put together. Make sure you present yourself at your most
professional. Act like the most sensible and level-headed
person you've ever met. This is, essentially, a job interview:
the bank is interviewing you and your business to try and
figure out whether it would be a safe place to put their money.
Remember that they're just like every investor, lending you
money with the expectation that they will get it back, plus
interest.
Secured Loans
Of course, you'll probably have a much easier time persuading a
bank to lend you money if you put up something of your own as
collateral in case you can't pay the debt back. Some dodgy
banks would really like you to secure your business loan on
your house, since they know that the failure rate of start-ups
is high and they'd really like to get their hands on it. Be
cautious, in case you sign your life away. It is almost never
worth starting a business if you can only get secured loans -
you're tying the business' fortunes too closely to your
own.
Government Loans
As part of the push to support small businesses, there are now
many government bodies that will offer no-interest or
low-interest loans to small businesses, a category which
includes home businesses. The government lot will obviously be
even more picky about your business plan, but it's still a good
option to have available to you. Even better, these loans will
often come with free help and advice from the agency that
issues them, as well as all sorts of booklets and leaflets
telling you the technical details of getting started.
Credit Cards and Overdrafts
These forms of debt are a very bad idea. Whatever you do, do
not finance your business with personal debt. You'll have to
make a massive profit just to pay back your debts, and it's
unlikely that you'll manage to both pay them off and have
enough money to live. If you can't get a loan, try to find
other investors instead.
Friends and Family
Friends and family can be a surprisingly good source of loans
to help start businesses, especially if they're in the same
industry themselves - they'll be more than happy to help you
get a foot on the ladder. You might be able to persuade someone
to give you the money at a good rate of interest, or even to
act as a 'sleeping partner', financing half of everything while
leaving you to run it all.
Be aware, though, that many friendships and families have been
ruined by failed businesses. I had a friend who went around
raising thousands from everyone he could think of to start a
magazine of his own, only for it to crash and burn by the
second issue. Be warned.
Keep Trying
If you get turned down for a loan, keep trying (preferably at
different banks!) You should revise your business plan each
time, and try to get as many people as possible to read it -
the more people who see it, the more ideas and suggestions you
can hear. If your credit rating is fine, then the problem has
to be with the business plan: fix it, and you're set. Good
luck.
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