How to Increase Your Chance of Obtaining Debt Funding
Getting funding for a business can be difficult. However, there are a few things that an entrepreneur can do to increase their chances in obtaining funding for their business. If you only need a small amount, such as a few hundred to a few thousand, it is best to ask family and friends for a loan first. Use assets, such as a house, banked money, or a car, as collateral with a family or friend and make sure to sign a promissory note.
If going through a bank for a loan is necessary, the same collateral can still be used. If you do not have collateral and your credit is poor, a co-signer will almost always be necessary. Friends and family can make great co-signers, but you will need to prove that the loan will be repaid or else they risk having to pay it back as well as the possibility of a decreased credit score. Banks want to give loans to those that are low risk. If they feel someone is a high risk, they are unlikely to give them a loan.
In addition to a good credit history, an existing account with the bank in which you wish to obtain a loan, collateral, and possibly a co-signer, a business plan is also necessary. The more money that is needed the more thorough this business plan needs to be. The bank needs to feel that your new business has the ability to be successful so they feel comfortable that they will get their loan money back. Contacting the Small Business Administration will also help, often immensely. Banks will be able to help with $1,000.00 to $50,000.00 in debt funding, but those needing more than $25,000.00 may be better off seeking equity financing.