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10 Ways to Finance a New Business


6
Bank Loans
Don't count out banks as a source of business capital.
Don't count out banks as a source of business capital.
© iStockphoto.com/jsmith

Bank loans are one of the most traditional and conservative ways to finance a small business. Unfortunately, they're also some of the hardest loans to get. Small business loans are small beans for banks because they make a lot more money from big loans [source: [Consumer Reports]. But with the right attitude and the right business plan, you might get lucky.

A typical commercial loan from a bank feels a lot like a mortgage. There's a fixed interest rate, fixed monthly or quarterly payments and a maturity date. The specific terms of the loan vary depending on whether it's an intermediate-term loan (less than three years) or a long-term loan (up to 20 years) [source: Entrepreneur].

One reason why bank loans aren't ideal for new businesses is that the bank will often require collateral or other existing business assets that it could seize in the event of a default. New businesses typically don't have a lot of collateral. That's why bank loans are better suited for construction projects, buying new equipment or expanding an existing small business.

Still, don't give up on banks. If you already have a strong working relationship with a local bank, you might be able to convince them to give you a small commercial loan. Remember to bring a solid business plan with realistic financial projections. Of course, it wouldn't hurt if the loan officer were a close family friend, too.


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