Loans and Financing

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In a macroscopic view, investments break down into two forms: debt and equity. You take on debt when you borrow money from a lender, and pay interest on that investment. You are required to repay the money with interest over time. Or, you can take on an equity investment — in which you sell a portion of the company to an investor in return for cash or something else of value.

Most important factor in getting a loan is the credit history of the borrower.  There are two basic types of loans- Business Loans (collateral from anyone who owns more than 20 percent of the company required) and Consumer Loans (based on personal assets).  Business loans have more strict requirements than consumer loans. For example, if your business is in tough financial times, your bank may ask you to immediately pay off the full amount of the loan, something that is unlikely to happen with a consumer loan. Keep in mind that if you tell a banker a loan is for personal use and you use it for business, that lie constitutes an act of fraud.

All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and balance sheet.loansandfunding

  • Government Guarantee loans– Funds guaranteed or provided by the SBA may be used to build or start a business, not as a means of paying off creditors, to cash out investors, or for investment in real estate, among some other restrictions.

  • Offices of Economic Development– These are state and local entities that provide financing and information on finding other sources of capital.

  • Commercial Finance Companies– The companies that make many car loans. They take on higher risk commercial loans than banks and can handle commercial loans.

  • Venture capital– It is a type of equity financing that caters to the funding needs of entrepreneurial companies that for various reasons can’t seek capital from traditional sources. Venture capital investments are made as cash in exchange for shares and an active role in invested company.

Most of the times non-profit companies are only eligible for government grants. Also grants are mainly issued for development and growth of a particular product or service. Therefore they are hard to come by for start-ups.