Gold Business Tips - Turning your passion into pure gold!

When you are looking to start your business many times you need capital. Unless you are independently wealthy or have capital from previous companies or buy outs (which is a huge advantage) typically you will need some sort of small business loan. This is often referred to as “loan finance.” Loan finance is money borrowed from a financial company such as a bank.

The loans are repaid over a designated period of time plus interest. Interest can either be at a fixed or variable rate depending on what loan you end up working off of. Typically a small business loan will require some security against a business or personal asset. So right away you will want to think about what asset that either you or the business own that can be leveraged to help get your small business loan.

Small business loans will all have different terms and it can range from one to 25 years and typically will be determined by the asset that is being financed. The greater the risk that the institution has the higher the interest rate will be. So anything you can do to reduce the risk will save you money in the long run and can make getting a small business loan easier to obtain.

Getting a Small Business Loan

The first step to getting your small business loan is figuring out how much capital you need. This typical is called “working capital” and it is the current assets (stock, cash and accounts receivable) minus current liabilities. If you have an accountant this is typically summarized on a balance sheet.

While the working capital will vary through out the year it will give you a clear indication of how much working capital you need. From there you can determine how much you would need to grow your business. The better you can illustrate why you need the loan as well as how you will use it to build the business the better you chances will be to get the loan for your business. After all the bank is looking for assurance that they will be repaid.

Figure Out Your Leverage and Interest Cover

Leverage is the ratio between the amount of debt you have to the total capital that there is in the business. The more debt that you have relative to the total capital or equity, the higher the leverage. Banks look for a leverage of no more than 50%, which means that your debt should be no more than half the total capital. Failure to do this will completely prevent you from getting a small business loan.