Then there is a second kind of finance requirement which is for the working capital. For example you manufacture some goods which are sent to distributors and the distributors are delaying your payments for some reason. In this scenario you need cash to keep your venture up and running.

So what are the possible sources of finance?

Personal savings and credit card: This is often the first source of finance that a small business owner looks at while starting a business. But personal savings are often limited and they may not be able to fund the dreams of the business owner completely. Some business owners may also look at credit cards when funds from other sources are expected to arrive soon. In this case the interest rate of the credit card should be kept in mind.

Friends, family members and other relatives: Funds obtained from friends are often interest free or at a lower interest rate with a flexible repayment facility. But the funds are often limited and beyond a point you may not get the required amount.

Venture capital (VC) funding/ Angel investors: VC funding often comes for a larger loan need and small business owners might not be able to tap this loan source. Small business owners may tap this loan source at a later point of time when their business grows and attains a critical size. VCs often invest in exchange for equity in the company. Even the angel investors might not want to fund a small business need unless the idea is a brilliant one.

Banks: If you have a good business plan then banks may be ready to fund you.

Out of all this different finance sources the loan option serves to get you a larger amount with a good repayment schedule.

So what should you do for a successful loan request processing?
You should prepare well before going to a bank for a loan. Research well and find out your exact loan need. The bank would see how you arrive at the loan figure that you are asking from the bank. You should also be clear with how much money you need, when you need it and how you are going to pay it back. Your credit profile would play a crucial role in such a decision.
What are the loan options you have?

Loan can be either a secured or unsecured one. A secured loan would enable you to get a larger loan amount at a lower interest rate and with a better repayment schedule. An unsecured loan on the other hand does not require any collateral but the interest rates are on the higher side.

Do you have an option in case of a poor credit history?
Financial institutions have designed special loan products for people with a poor credit history so it’s not the end of the world if you have a poor credit history. You should research well to find the lenders and loan products offered by them for people with a poor credit history.

A last word…..
The business owners should provide the lending institution with proofs of revenue sources and customers to assure them of the cash flow. The proofs of cash flow help the lending institution in making a lending decision. Solid proofs will ensure a decision in your favour. The bank would then do its own research to find how creditworthy you are.
For an existing business it’s easier to get a loan if it has a proven track record.
Remember if you do your homework properly getting a small business loan would be a cake walk.

Summary

For any successful small business obtaining capital at a reasonable rate is as important as getting business or customers. A small business might require finance at two stages –a) At the start up stage b) Working capital requirement while being operational.

The sources of finance are - Personal savings and credit card, Friends, family members and other relatives, Venture capital (VC) funding/ Angel investors and Banks. Loan can be either a secured or unsecured one. A secured loan would enable you to get a larger loan amount at a lower interest rate and with a better repayment schedule. An unsecured loan on the other hand does not require any collateral but the interest rates are on the higher side. Financial institutions have designed special loan products for people with a poor credit history so it’s not the end of the world if you have a poor credit history. The business owners should provide the lending institution with proofs of revenue sources and customers to assure them of the cash flow.