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Small business loans

manatdesk19160745.jpgSmall business loans are loans that are backed by the United States Government, which means that qualifying for these loans can be rather difficult at times. The reason why they can be rather difficult to qualify for is that the government has certain requirements that you must meet and so does the commercial lender. Because of how hard it is to qualify for this small business start up loans, many people look for different ways to fund their small business.

If you are still interested in applying for a small business start up loan here are some things that you need to know about small business start up loans.

Tip one:
In order to meet the financial requirements for funding your small business through a small business start up loan is a good credit score. With your business, just getting started chances are your business will not have a very good credit score, if it has one at all. This is the reason that commercial lenders you are applying through will look at your personal credit score to determine if you qualify for a Small Business Association loan.

Tip two:
You will also need to prove that you have invested a reasonable amount of capital into your small business. This original investment can either be cash to buy assets or you can invest actual assets that will be used to operate the business. If you choose to invest in assets, you are going to need to have receipts or invoices to prove what those assets are worth. There will be an examination of the debt-to-worth ratio to understand how much money you are asking to borrow in relation to how much you have already invested in the company because the ultimate goal is that when your borrowed funds are combined with your investment will allow your business to operate on a sound basis.

Tip three:
To get funding you will need to show the lenders a cash flow projection. The cash flow projection will show when you expect your income to turn into cash and when all of your expenses must be paid. You need to break the cash flow projection down to a monthly basis for the first year after the loan is made. If you are requesting a start up loan for a new business you are going to need to document all of assumptions you have made that went into what you estimated for both revenues and expenses and include them in your loan application.

Tip four:
To qualify for a loan you are going to need to have working capital, which is the excess of current assets over current liabilities. To get the loan you cannot have negative working capital because then you are not going to be able to repay your loan. When you are putting together your cash flow projection and your business plan for your loan you are going to have to explain how you have come up with your amount of working capital, what assumptions you made on the estimations.

Tip five:
You will also need to have collateral if you want to get any type of funding for your small business. Collateral of worthwhile assets is usually required on a Small Business loan application, but if it is the only unfavorable aspect of the application, it can be overlooked. The collateral can either be assets, which are useable in the business, or personal assets, which remain outside the business. Personal guarantees are also required of every person who owns 20% or more of the business, in addition to people who hold key management positions.

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