Small businesses are critical to the American economy. For small companies to survive and generate new jobs, they need credit on affordable terms. If you've considered starting a small business, have you thought about how to fund it? Borrowing money is one of the most common sources of funding a small business. Before you approach your lender for a loan, it is a good idea to understand as much as you can about the factors the bank will evaluate when they consider your application.
The Federal Deposit Insurance Corp. (FDIC) offers the following tips to help improve your chances of getting a good loan.Prepare or update a business plan. This summary of the company's goals, needs and financial projections will be crucial to your success, whether you're just starting out or you've been in business for years.
The U.S. Small Business Administration (SBA) offers the following tips for writing a solid business plan:
Understand the risks and costs of different kinds of loans.
Credit cards may appear to be an easy source of money, but they can be an expensive way to finance a small business. Don't make the mistake of using high-cost credit, such as personal loans or credit cards, to fund business operations when you can get a better rate on a business loan from your bank.
Home equity lines of credit also may be a source of funding, but you may not want to risk your family home to launch your business venture. Before going this route, carefully consider the risks involved. Likewise, think carefully before co-signing or guaranteeing a business loan for a friend or relative.
Know your options.
Don't overlook state, county and city governments when you're looking for financing. Many economic development offices have lending programs for qualified small firms that may offer special terms.
The FDIC also offers a toll-free hotline at (855) FDIC-BIZ (or (855) 334-2249), which responds to questions or concerns about credit availability for small businesses. At www.fdic.gov/smallbusiness, you will find useful information and an online form to ask the FDIC a question or register a concern.
Your banker also may be able to provide advice on how to expand your business or refer you to other local sources of assistance.
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