Let’s explore the 5 key factors which shape the entire loan approval process.

Key Factor #1:Do you have a sound business plan?

In addition to the loan application paperwork, a commercial lender will need to see your small business plan.You must prove that your business is viable on paper and demonstrate exactly how and when your new business will turn a profit.No reputable lender will hand over a loan check without first ensuring that your new business will have the ability to pay back the borrowed funds.

Key Factor #2:Do you have good personal credit?

Even with the best possible small business plan, it is highly unlikely that you will be approved for a start up business loan without a reasonable credit history.A lender determines the lending risk by evaluating your personal credit worthiness.Please understand and consider that you are entering into a legally binding agreement in which you promise to make timely, scheduled repayments.Your past credit history is the only evidence available to a potential lender, indicating how you have repaid other debtors in the past.

Key Factor #3:What collateral do you have to secure the loan?

Notice I didn’t write “do you have collateral”.You absolutely must have collateral to be approved for a standard commercial loan.This also includes SBA guaranteed loans.Please believe me when I tell you that the US Small Business Administration is not in the business of guaranteeing “high risk” commercial loans.A commonly used source of collateral for a start up business loan is the equity in your home, or other real estate you may own.Therefore, the start up loan is secured on this real estate.If you fail to repay the loan, your property may be at risk.

Key factor #4:What are you planning to use the money for?

In addition to demonstrating that you have need of a loan (in other words, you do not have other means of obtaining the funds to start a business), you must also indicate to a lender what you will be spending the money on.The lender must approve of how you intend to spend the loan.If you wanted to spend your start up business loan on research and development, the lender must approve.No matter for what or how you intended to spend the loan amount, it must be approved by the lender. This is usually spelled out in your small business plan.

Key Factor #5:What if you decide to repay the loan early?

Did you know that you can be hit with prepayment penalties of as much as 5% for paying off your loan early?This even applies to SBA guaranteed loans.Keep in mind, lenders are in business to make money.They only make money on interest repayments, not the principal loan amount.If you pay your loan off too early, they will lose out on potential profits!

Some Potential Problems…

What is you have poor credit or don’t own a home?Are you still able to secure a start up business loan?The answer is likely no.You can however check out alternative lending sources, such as peer-to-peer lending groups like Prosper or Loanio.

What is the Solution?

The solution is to find a sound alternative to taking out a BIG bank loan in the first place.Consider bootstrapping your new business.As a Start Up Business Consultant, I help budding entrepreneurs find low cost alternatives to loan financing.Clients who have purchased my eBook have found the money they need for small business success.You can find absolutely free sources of business start up funding to make your dream of small business ownership a start up success story — even if you have bad credit or don’t own a home!

2009 Kimberly Kelly – All Rights reserved

This article may only be reprinted in its entirety, including author byline, bio and with all live links in tact.

Author: Kimberly Kelly
Article Source: EzineArticles.com
Provided by: Pressure cooker

As a Start Up Business Consultant, I often have the unfortunate job of telling potential clients that minority business loans are a fairytale and not a fact.Oddly enough, I get the exact same reaction when I tell these same clients that small business start up grants are also nearly impossible to garner. So what is the good news?The good news is that I’m about to save you a lot of potentially wasted time and effort by giving you the facts.

Get the Facts!

Let’s check out these valuable tidbits before we proceed by examining some options — and the ultimatesolution.

Fact #1:
There are no specific business start up loans for members of a minority group.

Fact #2:
The only forms of government guaranteed financing available to minorities are SBA loan products.

Fact #3:
Minority small business start up grants do not exist.

What Government Programs Exist to Help Minorities?

So what help is available to members of a minority group?The Minority Business Development Agency (MBDA) operates under the auspices of the U.S. Department of Commerce.This government agency was established to give minority entrepreneurs the tools necessary to successfully compete in national and global markets.This agency however, does not offer minority business loans, nor do they hand out minority business start up grants.

Why is there So Much Misinformation about Minority Business Loans?

In 1977 the US Congress passed a law known as the Community Reinvestment Act. This law prohibited lenders from engaging in discriminatory loan practices in low income communities.This law was specifically intended to encourage banks to approve a larger percentage of loans to minorities.The passage of this law does not constitute a lending program specifically for members of a minority group.It was intended however to require that financial institutions give fair and unbiased consideration to minority loan applicants.

What Are My Start Up Financing Options?

Here are the most common methods of obtaining small business start up funding:

• SBA Loans
• Commercial Loans
• Home Equity Loans
• Peer-to-Peer Lending Groups (such as Prosper and Zopa)
• Credit Card Financing
• Loans from Family and Friends
• Bootstrapping

Consider Getting Some Help from a Start Up Efficiency Expert

A Start Up Efficiency Expert can point you in the right direction and advise you on how to reduce and/or eliminate many of your start up and operating costs.Certainly, you should also continue to conduct thorough research. However, do not trust every source of information you find floating out in cyberspace.You’ll not only waste a lot of time – but perhaps face staggering disappointment.

The Solution:
Find Free Sources of Business Start Up Funding

The Start Up Business Survival Guide is an excellent resource for anyone desiring to start a business with very little money.You can make your dreams of owning your own business without bank loans a reality – even if you have poor credit or don’t own a home.

Author: Kimberly Kelly
Article Source: EzineArticles.com
Provided by: Mobile device news