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What type of funding do you need for your small business

If you are planning to open a small business, you are going to need to know where you can go to get funding for your small business. Where you go for funding your small business is going to vary widely depending on how you plan to fund your small business. For example, if you plan on using traditional funding you will need to go to a bank to apply for a loan. If you plan to borrow money on your whole life insurance policy, you will need to contact your life insurance policyholder.

Here are the different types of funding that you can use to start a small business.

Number one: Commercial mortgage loans
If you are trying to purchase property for your small business, you can run into problems with different banks. The main problem that you can run into is banks not wanting to loan you the money for the property because it is what they consider special purpose properties. These kinds of properties can include funeral homes, churches, sheet metal shops, etc. Banks try to avoid giving loans to these types of purchases because they are not as safe as other loans. Another thing that banks might try to do is to attach a balloon and/or recall provision to commercial loans. This means that the bank can require you to pay back the loan early under certain conditions. These can both be avoided if you look for non-traditional lenders, who tend to be a bit, more understanding when giving commercial loans.

Number two: Traditional
This is probably the most common type of funding that small business owners use to fund their small businesses. Traditional funding is usually supplied through a bank in the format of a loan either directly to the company or in the form of a personal loan to the business owner. If you are going to be opening a small business and wish to take out a business loan, you are going to need to create a cash flow forecast and a business plan. You are also going to need to have a good personal credit score, this is especially important because your business will not have any type of credit history so you are going to have to secure the loan personally until you can obtain a credit history for your company.

Number three: Life insurance
If you have a whole life insurance policy you can borrow against the policy to fund your small business, however, this option is not feasible with term life insurance policies. If you are going to borrow against this policy, you should only do so if you have had the policy for several years so that the policy has some cash value. Insurers are known to let policyholders borrow up to ninety percent of the policy's value. However, be sure to keep up on your payment obligations so that the policy stays intact, otherwise you will have to pay everything back at once.

Number four: Second mortgages
This option should only be considered if you have no other options for funding your small business because if your business goes under you can actually lose your house. The only way to save your house if your business goes under is to keep paying on your second mortgage so that your home doesn't go into foreclosure. However, this still doesn't stop people from using this option as a way to fund their small business. The main reason that people choose this as their first option is because in most cases the interest that you pay on the loan is tax deductible, not to mention that the interest that you pay is often lower than your credit card interest or interest from an unsecured loan. Second mortgages are best for people who want to borrow a lot of money all at once and get a fixed monthly payment.

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