Tuesday, December 26, 2006

Getting a Loan !

How much does it take to start a web development firm? All things considered, it is relatively inexpensive to get up and running. Chances are, you already own your own computer and the software necessary to do your job.

If you are doing this on your own, you will be working out of your home for a while. There is no inventory to buy and, if you’re proceeding as most people do, there are no employees to pay. Compared to other industries you could be in, you won’t be doing too badly.


So, what’s left to spend money on? Here are some basics that will be covered in depth later in this series:

  • Forming your business entity.
  • Retaining an attorney, accountant, or other professional.
  • Purchasing an accounting program.
  • Purchasing business insurance.

All totaled, you could spend as little as a few hundred dollars or as much as a couple thousand on these items. Those listed above are the essentials — the things you need to even call yourself a business. Then there are supplemental items, which are almost as important:

  • Business cards.
  • Letterhead/envelopes.
  • Business-dedicated phone line.
  • Domain name.
  • Personal Web site hosting.
  • Hardware/software upgrades.

Those things shouldn’t add up to too much more over what you have already paid for the necessities. And, with some effort, you can skimp on some of them. For example, you can make the printed items on a good inkjet printer until you have a little more to spend for the real thing. Or you could forward your domain name to a free host.


Many business surveys have revealed that most small businesses are started on less than $5,000. That would certainly seem to be the case with web development. Some people dip into their savings to start their firm. Others work a full-time job for someone else, building their practice in their free hours. It may take time, but determined entrepreneurs can start their firms on shoestring budgets.

But if you are going to do this full-time, you are going to eventually need to spend some money on advertising. Banner ads, Yellow Pages, billboards, radio spots, TV airtime, newspaper and magazine ads, are some ways to get your name out. You probably won’t want to invest in all of them, but even one can cost significant money — maybe more than you are prepared to spend right away. At this point, some outside help may be just what you need to get the ball rolling.

Borrowing money to invest in your business is a very common practice and should be seriously considered if you want to expand your business in a relatively short amount of time.


There are three basic kinds of loans you can get:

Line of credit

A line of credit is a loan that works much like an ordinary credit card. The bank makes a certain amount available to you, and you only draw from it what you need. You pay interest on the amount you are using, not the entire amount available. There are two kinds of lines of credit: personal and commercial. Commercial lines of credit are preferable to personal lines of credit because the amount of the loan is secured by company, not personal, assets. The trade-off is that commercial lines are usually harder to qualify for. The amount that you qualify for and your interest rate will depend on the collateral you have available, your credit history, your cash flow needs, and the risk perceived by the lender.

Credit Card

Often, this is the easiest loan to acquire. There is a reason. The interest rate on a credit card is generally the highest of any other kind of loan. Higher interest rates mean that the credit card company is willing to accept a greater risk, so people who did not qualify for other kinds of loans are may be able to get a credit card. There is also less hassle getting a credit card. Many companies allow you to apply over the internet or over the phone with minimal information. Of course, one piece of that information will be your social security number. Credit cards are always tied to an individual, so you will be personally guaranteeing the outstanding balance. A credit card offers many benefits that other kinds of loans do not have. Automatic insurance against damaged goods, airline credits, and annual cash rebates are just a few of the perks credit card companies give you. Many times this is the best option for entrepreneurs who are just starting out. Credit cards are accepted many places and most business owners don’t need to have a business history to be accepted.

Small business loan

If you are feeling daring, you can apply for a small business loan. This type of loan generally has the lowest interest rate of any other option, but there are a couple catches. First, you pay interest on the entire loan, regardless of how much you are using at the time. Second, they are the most difficult to qualify for. Banks generally like to see a 30 to 36 month history of paying your bills on time, sufficient collateral to cover the loan, significant cash flow to service the debt, and a reasonable balance between your debt and equity. You will also be expected to have invested a significant amount of your personal funds into your firm. After all, why should they take the risk of your business failing if you are not willing to?

The US government recognizes that many small business cannot qualify for a small business loan on their own. If you are still interested in this form of financing, but don’t otherwise quality, you can seek help from the SBA. The SBA has many programs to assist small business in acquiring the capital they need. Among their most popular programs are the 7(a) Loan Guaranty (which guarantees the lender repayment of your loan) and the Microloan Program (which provides loans for $100 - $25,000.)

There are also less formal ways to borrow money to expand your business. Borrowing against the equity of your home is one option. With sufficient home equity, this kind of loan is relatively easy to qualify for, and has the advantage of being tax-deductible. Some firm owners form a money pool with friends or relatives, who are less likely to closely scrutinize the borrower. Whatever you decide, make sure the transaction is well-documented and contains a clear method for the loan to be repaid.


Things you should have when requesting money from anyone (except possibly credit card companies who don’t really care about anything except having your SSN):

  • Full business plan. Include all general information, market research and projected financials.
  • How much money you need and a detailed description of exactly what you need the loan for.
  • Copies of your business and personal credit reports along with documentation explaining any derogatory remarks on them.

Remember that a lender’s primary concern is your ability to repay the loan. If you can adequately demonstrate your ability to do that through your business plan, your commitment to your firm, and your previous repayment history, most lenders will be happy to work with you.

Now that you have the money you need to get off the ground, you’ll need some people to help you out. Next time we’ll talk about selecting professionals to take care of the mundane and give you time to take care of the creative.

Friday, December 15, 2006

Small Business Loans - An Overview

Starting a New Business

Whether you're starting a new business, or have been in business for some time, there may well be occasions when additional funding is required to fund the business. Small Business Loans come in various forms, and are widely available. They can provide a very flexible solution to any type of funding requirement. This article provides a high level overview of the small business loan market.

Commercial Business Loans

Commercial loans are available to most small businesses and start-ups, subject to status. All the main high street bank, and a multitude of other lenders operate in the small business loan market. As with a personal loan, your business will borrow money and repay it over a pre-agreed number of months or years, at a fixed or variable interest rate.

Interest Rates

Business loans are typically available at a fixed or variable rate but capped rate loans are also available. With a fixed-rate loan, you know exactly how much you need to repay for the duration of the loan.

Variable rate loans are typically tied to the Bank of England base rate, so may well fluctuate over time. Obviously, if the BoE lowers interest rates, you will pay less, but if it raises rates, you may end up paying significantly more to borrow money than you may have hoped for.

Some providers now offer business loans with a 'capped' interest rate. This option allows you to benefit from any falls in interest rates but the rate won’t rise above the agreed level for the capped period.

Where to look for a loan

Most banks and building societies offer commercial loans. You should spend time researching the loans available rather than simply going with your current business banking provider. To avoid unauthorised lenders, make sure your potential lender subscribes to the Business Banking Code.

Things to keep a look out for

Most of us are guilty of signing documents without reading the small print, but when it comes to taking out a small business loan, you should make sure that you are aware of any hidden charges, or potential penalties which may apply. These include an initial fee for taking out the loan, redemption penalties for early settlement of any loan, late payment charges, and other arrangement fees.

You may well secure a loan at a seemingly competitive rate, but "add on" fees may bump the real repayment cost up significantly. Ask any potential lender to disclose all such fees/penalties up front before signing anything.

Wednesday, December 13, 2006

Business Loans - Commercial Loans

Business loans are commonly used by business owners to access cash needed for business start up, growth or improvement. There are a wide variety of programs and lenders available, so it’s important to understand your specific needs and pursue a loan that fits your situation.

What Is A Business Loan?

A business loan is a financial tool available to business owners of all sizes who need funding to enhance their business. Small businesses and start-up businesses typically have a more difficult time securing a business loan, but it is certainly not impossible. Regardless of your business size, any lender you work with will want to see firm documentation that supports the viability of the business as well as the purpose for the loan.

What Can I Use It For?

Business loans can be used for many things. Some common uses include start up costs, expansion of the business, capital investments, and refinancing of business debt. Most business owners will pursue a business loan at some point because it is common to need additional funds at various stages of business development.

Where Can I Get A Business Loan?

Banks are a common source of business loans, but they are often more conservative in their lending decisions. For this reason a bank is much more likely to underwrite a loan to a larger or more established business. It’s not impossible to get a loan from a traditional bank if you’re smaller or just starting up, but you will usually need to provide more extensive documentation of your business plans.
There are many other sources of business loans in the UK, so do some research on other lending sources. There are lenders and angel investors that specialize in small or start up loans, as well as venture capitalists seeking larger investment opportunities. Additionally, there are several government programs designed to assist business owners with securing a business loan.

What Documentation Will I Need To Apply For A Business Loan?

Specific documentation will vary somewhat from lender to lender, but there are a few common things that you will be asked to provide:
  • A complete business plan, including an overview of the market and customer base for your business
  • Personal and business financial statements
  • Collateral to secure the loan
  • Incorporation or LLC documents (if applicable)
  • Proof of ownership or sale if the business was purchased by you
  • Tax returns and credit references

These are the basic items you will need, but remember that each lender will probably have other information they will want you to provide.

Are There Different Types Of Business Loans?

Yes, there are many types of business loans and the choices can sometimes be confusing. Examples include small business specific programs, industry specific loans, "micro" loans for small dollar amounts, community development loans, and many others. Whatever your business need, there is most likely a business loan for you offered somewhere.

How Do I Find The Right Business Loan?

Finding the right business loan takes time and effort. Research is the first step; gather information about lenders and programs that may be suited to your needs, and then talk to representatives from these sources to get more details. Outline your specific situation and ask about options that may be available to you. Persistence and perseverance will pay off in your pursuit of a business loan.
Obtaining a business loan can seem a daunting task, but it’s certainly manageable if you’re organized and prepared. Demonstrate to the potential lender that you are a good candidate for the loan by providing thorough documentation about your business. And finally, don’t give up if the first lender you approach turns you down. There many different lenders and programs available so keep searching until you find the one that works for you.

Friday, December 08, 2006

The Lowdown on Business Loans

As you know, a loan is based on a simple idea: Someone gives you money, and you promise to pay it back, usually with interest. Since you must pay back the lender whether your business is a fabulous success or a miserable failure, the entire risk of your new enterprise is placed squarely on your shoulders.

Of course, nothing in business -- or in life, for that matter -- is without risk. Nevertheless, a commercial lender will be unwilling to lend you money if it looks like there's much chance the money won't get repaid. And to help keep the risk low, a lender will very likely ask for security for the loan -- for example, a mortgage on your house so that the lender can take and sell your house if you don't keep up your loan payments.

But as compared to selling a portion of your business to investors, there's an obvious plus side to borrowing money: If your business succeeds as you hope and you pay back the lender as promised, you reap all future profits. There's no need to share them. In short, if you're confident about the prospects of your business and you have the opportunity to borrow money, a loan is a more attractive source of money than getting it from an equity investor, who will own a piece of your business and receive a share of the profits. Again, the downside is that if the business fails and you've personally guaranteed the loan, you'll have to repay it. By contrast, you don't have to repay equity investors if the business goes under.

Loans are so common that you probably are familiar with the mechanics, but nevertheless it makes sense to review the basics.

The Promissory Note:
A lender will almost always want you to sign a written promissory note -- a paper that says, in effect, "I promise to pay you $XXX plus interest of XX%" and then describes how and when payments are to be made. A bank or other commercial lender will use a form with a bit more wording than our form, but the basic idea is always the same.

A friend or relative may be willing to lend you money on a handshake. This is a poor idea for both of you. It's always a better business practice to put the loan in writing and to state a specific interest rate and repayment plan. Otherwise, you open the door to unfortunate misunderstandings that can unnecessarily chill a great relationship.

Sign only the original of the promissory note. When it's paid off, you're entitled to get it back. You don't want several signed copies floating around that can cast doubt on whether the debt has been fully paid. But you should keep a photocopy of the signed note marked "COPY" for your business records. (See more on promissory notes.)

Repayment Plans:
If the interest rate on the loan doesn't exceed the maximum rate allowed by your state's usury law, you and the lender are free to work out the terms of repayment.

Typically, a state's usury law will allow a lender to charge a higher rate when lending money for business purposes than for personal reasons. In fact, in several of these state laws, there's no limit at all on the interest rate that can be charged on business loans as long as the business borrower agrees to the rate in writing. In a few states, the higher limit or absence of any limit applies only when the business borrower is organized as a corporation. In other states, the higher rates permitted for business borrowers are legal even if the borrower is a sole proprietorship, partnership, or limited liability company.

Check your state usury law. :
As a general rule, if your business is a corporation and the terms of repayment are in a promissory note, the lender can safely charge interest of up to 10% per year and not have to worry about the usury law. But because there's so much variation in usury laws from state to state, you or the lender should check the law. Look under "interest" or "usury" in the index to your state's statutes.

Tuesday, December 05, 2006


FINANCIAL STATEMENTS FOR SMALL BUSINESS LOANS When you ask for a small business loan, you have to convince the lender that you would indeed be able to repay that loan. This is typically done by preparing realistic financial projections about your cash flow patterns. The cash flows would indicate how and when you would be able to repay the loan.

Unless yours is a very tiny business operation, preparing a cash flow statement is not simple or straightforward. You would need to prepare other supporting financial projections and then derive the cash flow projections on their basis.

TYPICAL FINANCIAL PROJECTIONS 1. INCOME & EXPENDITURE STATEMENT First come estimates of your Income and Expenditure.

-- How do you estimate your income to grow from month to month?

-- What direct costs would be incurred while earning that income?

-- What "fixed" establishment costs, such as rent, staff salaries, council taxes, interest and depreciation of plant & machinery would have to be incurred month after month?

-- After how many months would your income begin to exceed the expenses - the total of both direct costs and fixed establishment?

-- What would be the net losses or net profits each month?

You start the estimating process by going into the field and collecting needed information. Based on the information, and also the kind of marketing setup you plan to organize, you estimate the income and expenditure levels.

2. WORKING CAPITAL STATEMENT Next come the Working Capital estimates.

-- How much cash would you need to hold to meet day-to-day expenses?

-- If yours is a manufacturing or retail outlet business, you would need to hold inventories. What level of inventories would have to be maintained?

-- If you sell on credit, you would typically have unpaid customer bills at all times. How much would these be?

-- You would also usually have to make advance payments and deposits. What would these total to?

In the case of manufacturing businesses, the inventories could be raw materials, semi-finished products on the shop floor or unsold finished products in the warehouse. The last two would have to be valued to identify the cash blocked up in them.

You would notice that you would have to block up cash for all the above. For example, cash payouts would be involved in all types of inventories and unpaid bills would have been cash if the credit had not been extended. Part of this could be financed by the credit that you yourself could get, as in the case of materials inventory purchases.

There are formal methods that make it easier to compute working capital requirements. You can take the help of a professional accountant to help you gather the needed information and prepare a working capital estimate.

3. CASH FLOW STATEMENT The Cash Flow statement reflects the cash impact of all the business transactions. You start with the opening balance of cash (and bank) at the beginning of the period. To this you add any cash receipts. Cash receipts could be: CASH INCOME, COLLECTIONS FROM CREDIT CUSTOMERS, CASH YOU BRING IN AS BUSINESS CAPITAL or LOANS YOU RECEIVE FROM DIFFERENT SOURCES.

From the total of opening cash and cash receipts, you deduct cash payments to arrive at the closing cash (and bank) balance at the end of the period. Cash payments could be: BUSINESS EXPENSES (excluding non-cash expenditure like depreciation), CASH PURCHASES (OF ASSETS LIKE MACHINERY OR CONSUMABLES LIKE RAW MATERIALS), PAYMENTS TO CREDIT SUPPLIERS, YOUR DRAWINGS FROM THE BUSINESS or REPAYMENTS OF LOANS.

The Cash Flow statement is typically prepared in a standard format by showing only the net impact of receipts and payments for items like income and expenditure and working capital. You would most likely need the help of a professional accountant to prepare it.

4. BALANCE SHEET Finally come the Balance Sheets.

-- A Balance Sheet is a Statement of Affairs of the business. It is drawn up As On some particular date.

-- The Statement of Affairs shows the Assets of the Business, its Liabilities and Owners' Equity. Owners' Equity is the difference between Assets and Liabilities. If Assets exceed Liabilities, Equity is positive. Otherwise, it is nil or negative.

The various assets you purchase for the business are shown in the Balance Sheet at cost (less depreciation charged to Income & Expenditure). Your borrowings and supplier credit are shown as liabilities. The amount you brought in as capital (plus any profits not withdrawn from the business) is shown as the equity. Business losses and any cash withdrawals by you from the business are shown as deductions from the equity.

Here again, you might need the help of an accountant. Balance Sheets have standard formats. The Income & Expenditure, Working Capital and Cash Flow statements affect the Balance Sheet. These could become quite complex and an accountant is the best person to handle it.

REALISTIC PROJECTIONS To make the financial projections realistic, you have to:

-- Collect business and technological information from the field -- Estimate projected values on some specific basis, such as sales estimates from experienced distributors and cost estimates that are derived from production estimates Once such realistic estimates have been made, you would find it quite easy to make your case for a small business loan.

Friday, December 01, 2006

Business Loans – Easy Way To Expand Your Business

Solution of Credit Rating Problems

Have your plans for business diversification stopped due to credit rating problems? Don’t let your past mistakes get in the way of your growth plans. Your business is your baby, a regular cash flow is needed to ensure its development. Apart from the initial capital needed to start-up a venture, there is always a requirement of monetary funds to guarantee its smooth day-to-day business. There is never any surety in the world of business. The profit chart may tilt any which way. The situation becomes worse if you suffer from a tarnished credit history. Paucity of funds is common, especially for aspiring businessmen as very few lenders are willing to take on such a high risk deal.

Important Of security

Business loans are a type of personal loan. A borrower can avail a secured or unsecured business loan. If the borrower can place his property or business premises as security, then it works to his advantage. His loan is approved fast and he has to pay a lower annual percentage rate (APR). Lenders allow some relaxation in the interest rate, and terms and conditions of the loan due to the presence of security. The repayment period is also comparatively longer.

Effect on APR(Annual Percentage Rate)

The borrower can also apply for unsecured business loans which does not need any collateral. But here the risk factor is on the lenders side, so he compensates it by charging a high rate of interest. The repayment period is short, but there is no threat of repossession, unlike secured business loans. Prior to Christmas, the loan market is ripe with different loans on the offer. The borrower should read the fine print carefully. An online search is advisable before embarking on any decision. Taking a loan is a huge risk and one should not take it lightly

I have business links with some of the best lenders in the UK financial market. These lenders may offer you different types of business loans like secured business loan and unsecured business loan.

What Your Banker Needs When You Apply for a Loan

Walking into a bank for a business loan without any documentation is the quickest way to get turned down for a loan. And it is not surprising that a high percentage of potential business loan wannabes simply are unprepared to deal with what the bank needs to see when you apply.

When you visit your banker, he or she will need to have documentation for the specific dollar figure you are requesting a loan for, as well as a very detailed report of exactly what you are doing with the money, and why you feel that amount is neccessary.

Your banker will also ask for a projection of when you feel you can realistically pay back the loan, how often you will make payments, and how much you plan to pay on a monthly basis.

You will also need to offer financial history for your company (balance sheets, profit and loss statements) for at least the previous three years, if it is an established company. If this is a start-up business, you will need to have a concise and detailed business plan to provide to the bank.

You should also have your projected profits and projected cash flow for the next year, done on a month by month basis. This should include all projected money coming into the business, and where money will be going out of the business (suppliers, employees, etc).

A fully detailed report of where you envision your business to be each year for the next 3-5 years. This should include how you anticipate your company expanding (in terms of employees, products, locations, etc). You need to show the bank that you have plans for the future and you know where you want the business to be headed.

Your banker will also likely want to know your personal experience in business. Do you have any degrees or certificates that are relevant to your business? How long have you worked in the industry?

When you go into the meeting with your banker for a business loan fully prepared, you have increased the odds of being successful with your loan application. Never underestimate the power of preplanning.