If you are seriously considering starting a business, and are looking for a business loan you’ll need to know a lot about your future business, including what type of business you are starting.
Is it a sole proprietor, general partnership, limited partnership (LP), foreign limited partnership, limited liability partnership, foreign limited partnership, limited liability partnership (LLP), foreign limited liability partnership, non-profit corporation, foreign non-profit corporation, limited liability company (LLC), foreign limited liability company (LLC), corporation, subchapter “S” corporation, or foreign corporation? These simple definitions are just the beginning. It is a good idea to get a better look into these types of business plans. Doing so will help you better know what type of new business loan to apply for, and how much to apply for.
Sole Proprietorship: You are personally liable for the company. You put your own property and assets at risk in this business venture.
General Partnership: You and others each have a stake in the company and co-own the company’s assets.
Limited Partnership: This is like a general partnership or a sole proprietorship, except that there are limited partners (individuals who invest in the company but have nothing to do with its day to day operations).
Limited Liability Partnership: Often used by attorneys and accountants, this business format shields partners in the firm from liability. This type of partnership may vary from state to state.
Nonprofit Corporations: This type of business can’t issue shares in the company and can’t pay dividends.
There are other ways to structure your business, just make sure you know the specifics of how you will be doing it before going in to apply for any new business loan. If you don’t think you will be able to get a loan by yourself, you will want to find a business partner, or investors. But if you are willing to try to get a new business loan on your own, your lender will want to know a few things about your finances. For example, they may want to know what type of business you are going into (so make sure you know). They will obviously want to know how much you want to borrow, so make sure that you have an accurate amount. Do not inflate the number you need; do your homework and don’t underestimate how much it will cost to start your new business. They’ll want to know your current financial state, so make sure you know all the numbers. You should also know how long you want to take to pay off the loan.
There are several web sites where loans are available. Even if you don’t end up going through one of these companies, it is a good idea to look at some of the rates they offer. Call around and see what banks or credit unions are offering before you go into a bank asking questions. It also wouldn’t hurt to ask other small business owners about the financing of their own businesses. The more you know about your business and the cost to operate it, and the better you have been with your personal finances, will both help you when applying for a new business loan.
By Clint Hunter