1. Sina Enayati

2. Introduction: There is no doubt that we live in very challenging economic times. The housing slump, severe unemployment, natural disasters, and increasing commodity prices have made our recovery difficult. Many experts believe that as we continue growth in the US, some signs of slow recovery will develop in the second half of 2011. Under current circumstances, small businesses feel a double pressure. The slow recovery couples with difficulties getting access to more capital to grow business. Small business owners need additional money for expansion, replacing aging equipment, increasing inventory, marketing, managing cash flow, and taking advantage of purchasing discounts.

3. Needs for capital: Entrepreneurs would love to have additional capital in the bank to meet their needs, but the reality is that most small business owners dont have that luxury. As a result, they have to keep open the doors for business with only a few options for help, including: Profits: Cash from operating profits is clearly the best choice, but many businesses find that borrowing from their bank is the logical choice. Sale of assets: Most business owners dont find this a viable option to raise capital. There are advantages from selling your assets; you get your needed funds immediately. The disadvantages are that the assets may grow in value quicker than what the cash can yield elsewhere. Additionally, you can be taxed on any capital gains. Equity financing: This option allows you raise cash by selling shares of your company to investors. Injecting your business with cash and investors has a chance to yield higher returns than traditional CDs or money market accounts. Debt financing, bank loan or private loan: All businesses at any stage of their growth turn to debt/loan to finance their capital needs. The most popular form of financing is asking your bank for loans or lines of credit. This step needs your banker or a consultant to package the best loan application.

4. Avoid common mistakes: Keep in mind that whether you're applying for a business loan or a personal loan, there are common mistakes that can hinder the process. Here are some things to be mindful of: Three-bureau credit score: Before you apply for a loan, you need to know where you stand. Rate, terms, and conditions: Interest rates change. If you think you've found a good rate, lock it in before it goes up. Too often, people make the mistake of getting greedy and waiting for interest rates to drop farther. Know some basic information about whether the loan is fixed or variable. Ask about the index, margin, and how often the rate changes, etc. Purpose of the loan: When applying for a business loan, you need to indicate how the money will be used. Lenders want to see that you know exactly what your needs are and how the loan will meet those needs. Choosing a lender: Although there are various lenders available, many people still head to their local bank first without shopping around. Outdated financials or lack thereof: Whether you are seeking a personal or business loan, you should not apply without having proper and current financial documentation Business plan: You need to demonstrate how the business will operate and make money. A business plan is essential for a lender to see your specific goals and how you intend to reach them. You must include all applicable supporting data, including financials. Loan application: Make certain that the application is completed accurately and all supported documentation is attached. Consult with your banker or your consultant before submitting your loan application to the lender.

5. What kind of loan do I need? There are three main types of loans: short-term, medium-term, and long- term. To determine your needs, ask yourself these five questions: What will I use the money for? How much money do I need? Minimum? Maximum? For what length of time will I need it? How will I repay the loan? Do I have any other resources or assets that I could use in place of a loan or to reduce the amount of the loan?

6. Match the loan terms with your financing needs: You must match your payment terms to the use of the funds requested. In simple terms, don't ask for a long-term loan to meet short -term needs and vice versa. You should not be paying a car loan a year after the vehicle has been carried off to the junkyard. On the other hand, there's no need to jeopardize the financial stability of your business by taking out a short-term loan on a major investment like real estate. Short-Term Loan: A short-term loan, 90-day notes, lines of credit, and monthly payment plans that generally lasts less than 1 year. It is used for immediate needs and is repaid as receivables are collected. Medium-Term Loan: An intermediate term loan generally spans 1 to 5 years and is used for major equipment and other purchases. Long-Term Loan: Long-term loans are generally used for commercial mort- gages or to purchase fixed assets.

7. Make use of all the expertise that's available to you. Consultants are best source of information and can package an attractive loan application. They know the numbers and the ratios. Lenders turn down thousands of loan applications every day; make sure that your loan request is not one of them.