Education, improved means of travel and communications and the advent of computers have shrunk global boundaries. The world seems to have become one. A hard working, intelligent person with innovative ideas always wants to give wings to his dreams. One thing he doesn’t need to worry about is how to obtain the finances needed to implement his ideas for starting a business. Today, there are many different sources for obtaining business loans.

Benefits of Business Loans:

You no longer need to depend on friends and relatives for small business loans as more and more lenders are realizing the profitability of backing the little guy.
Business loans have many benefits to the entrepreneur. They allow the businessman to retain the ownership of his company without the risk of tying up his company equity with shareholders. This gives him the flexibility to move the business in any direction he wants. It makes him the master of his own destiny.

Types of Loans:

There are three types of business loans:

• Short-term business loan. This provides capital to start business operations. They are generally for one year or less.

• Intermediate term loans. This type of loan helps new businesses pay for equipment and cover large start-up expenses. They are usually available from one to three year terms.

• Long-term loans. These loans help to start up business, covering initial costs, equipment, furniture, fixtures and commercial mortgages. Such loans are typically granted for three to seven years before repayment installments become due.

Preliminaries for a Loan Approval:

Before approaching a lender, determine your cash needs and present a comprehensive business plan. Analyze your current or projected business cash flow and make a realistic plan for loan repayment as part of the loan application. Incorporate the following points in your business plan presentation while preparing a loan request.

• Purpose of the loan

• Realistic estimate of capital required

• A management profile

• An overview of the market, your projected customer base and competition

• Personal and business financial statements

• Collateral that can secure the loan

• Supporting documents such as articles of incorporation or LLC organizational documents, proof of ownership or sale if you have purchased the business, material contracts, and letters of reference, financial statements or tax returns for the last three to five years, a list of assets and liabilities and credit references.

Post Loan Approval Actions:

• Work with the lender to obtain comfortable terms

• Work out the loan repayment date and manner of payment, whether in a lump sum or installments

• Negotiate a market-value interest rate equal to or better than the rates seen on similar types of loans

• Consider the fees associated with the loan

• Keep in mind fees or penalties imposed for default of the loan terms

• Work out a realistic payback plan in conjunction with your business plan

Obtaining a loan will depend in part on the criteria and expectations of the lender. Read the loan agreement carefully and have your lawyer to review it.