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It is virtually impossible to start a business from scratch these days. Minimum costs of doing business include physical facilities (rent, heating, cooling, electricity, etc.), internet and phone access, staffing, marketing and advertising, and not to mention the simple cost of creating the product you intend to sell. With all of these costs of starting up, it leaves entrepreneurs with little to no opportunity to succeed – unless they find outside funding.

Potential Sources of Outside Funding

  1. Family, friends: While potentially the best return on investment, at the end of the day, do you want to risk your relationships? Considering the success rate of start up businesses, I would recommend against financing this way.
  2. Venture capital: Great, if you have a multi-million dollar idea that will reap rewards quickly. Don’t bet the farm on being able to land this type of investment
  3. Small Business Loans: This is probably your best bet of all. The money is detatched from friends and family, so you aren’t risking their well-being, and in smaller quantities, so you aren’t risking your own.

What to Look For

In looking for a small business loan, regardless of whether you have bad credit or not, it is best to find lenders with the lowest rates. Strangely enough, this tends to be online, perhaps because of the lowered cost of acquisition.

Look for terms that match your business cycle. If it will take you a year to recoup your investment, make sure that your loan reflects that projection. If you expect to make money back quickly, but in smaller spurts, you can choose a less flexible pay-back-plan.

Be careful, but not stupid. Don’t cripple your business by borrowing too little to succeed.

This Financial Services article was written by George McClintock on 10/30/2007

George is a serial entrepreneur having started 15 successful businesses, each of which continues to this day.