When it comes to getting business loans, most business owners have no clue what they are actually getting themselves into. Unfortunately, the results can be disastrous. You may have heard that you can “go to any bank”, but this doesn't mean your local branch or even the company you're borrowing from has anything to do with you personally. In fact, banks rarely have anything to do with your business.
A business loan is simply a loan specifically designed for business purposes. It makes good sense that such loans should be secured against assets that are worth something (like your business). As with most loans, however, it also involves the creation of an asset, which is going to be paid back with even more interest in the future. The result is that when you get a business loan, you want to make sure that you can pay it off – and that you have a plan to do so.
Most people go to their bank and find out that they are not really capable of handling their businesses – because their businesses are long-term and complicated. Banks don't like to take on these kinds of risks. So they pass the risk onto other financial institutions. If you're going to get business loan financing, you'll probably need to provide collateral – like your car or your home. And the best place to do this is with a local bank.
However, even though a bank is the obvious choice to get business loan financing, it isn't necessarily the best. Why? Because banks rarely have a good track record when it comes to working with business owners who have poor credit ratings. In fact, many banks simply don't want to loan money to new business owners. Instead, they want to keep them as long as possible, to reap the rewards of their good-old-fashioned money-lending business.
But that doesn't mean you can't get business loan financing from any other source. You just have to know where to look. And in this case, your local bank isn't always the best place to get business loan financing. Many banks are now seeing a lot of business owners filing for bankruptcy, which means they don't have very much extra money to lend. And even if they do give out some loans, they're only for those who have a really good business plan and a lot of assets (which means your business won't be on the verge of filing bankruptcy.)
That leaves two main options to get business loan financing. The first is to use your personal credit. You can use your personal credit score to get some of this funding, but be prepared: if you don't pay it back, your credit will suffer. And even if you do have assets to use to pay back the loan, banks won't want to help you out if you're already bankrupt or close to it. They don't like to take the risk of you going completely out of business.
Another option is to get a small business loan from . . . . . . a private investor. This route can work, but the interest rates can be high and you may not find enough good quality investors to help finance your business. Also, you may find that the rate you were quoted wasn't based on your business's value or was much higher than you could get elsewhere. This route can work if you have a strong business plan and a lot of capital to lend, but it's not a reliable way to get business loan financing.
Your second best option for getting business loan financing is to go online to find a directory of investors willing to fund your business. These directories can be extremely helpful because they contain lists of people who have money to lend, complete with background information. These investors will have either good credit ratings or have a reliable history of lending. Once you have this list of potential lenders, you can go through the process of getting a business loan by submitting your company's information to each potential lender.