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Can you get a small business loan?

[Jan 7, 2011.]

 

Many people who have been unemployed for a long time eventually begin to think about starting a business. If you are ready to hang out a shingle and strike out on your own, you may be wondering if there is any way to get a small business loan. Here are some reasons why banks may be reluctant to grant you a loan if you're a newbie. The good news is that you may be able to turn to other sources.



  1. You have no track record. Even if you have a lot of experience in your industry and plan to launch a business in this area, most lenders are unlikely to give you a small business loan. That's because banks are often unwilling to lend to businesses that haven't been tested. So even if your buddy Joe works as a loan officer at the local bank, his hands are probably tied when it comes to approving you for small business financing because you are unknown and just too much of a risk.

  2. You have an incomplete business plan. Most lenders want to see a detailed business plan before even considering your loan application. If you need help putting a plan together, look for organizations in your community that offer free classes on business plans. Depending upon the business it may even make sense to spend some money to hire someone who has plenty of experience writing business plans.

  3. You have too much personal debt. Having a poor credit history is going to work against getting approved whether you apply for a personal loan or business financing. It may be tough to tackle your debt if you are unemployed, but do whatever you can to avoid taking on new debt. Even some peer-to-peer (P2P) lending networks may turn you down for a loan if you already have too much debt.

  4. You don't appear professional. Put your best foot forward when trying to get a loan. Dress the part and put together a nice presentation that will help you be taken seriously. You want lenders to believe that you are embarking on a real business venture and not just passing time until you find another job.


Consider other sources of loans


While getting a personal loan or business loan from a bank is probably a long shot at this point, there are other places you can turn. P2P lending networks are made up of individuals willing to loan money to people they view as a good risk. Some entrepreneurs tap credit cards to get the cash they need, but going this route usually involves high interest rates so use credit cards prudently. Finally, it may be possible to take out a loan from your retirement fund, but ask yourself if you're willing to take a huge risk with money you will need in your later years.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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