The 3 Most Common Financing Questions That Entrepreneurs Ask

Maybe you have the same train of thought as your fellow business owners.null

One of my highest honors is working with businessowners and entrepreneurs to help them think through their best optionsfor financing their business growth. Today, I want to share three of the most common questions I get and how I respond:

1. Do I need a line of credit for my business?

Everybusiness needs a safety net. Not all companies can afford to set oneaside. If you have one of those companies, try obtaining a line ofcredit from a bank as a method of insurance for your business.

Even if you don't have immediate plans to use the credit line, it's helpful for rainy days or if your business deals with seasonality.Consider it peace of mind if your gets tight. You never want to be in aposition where you get stuck with expensive loans because you needmoney in a hurry.

Ideally, lines of credit should only be tapped to cover short-term expenses that you'll be able to repay reasonably quickly.

2. Getting a loan through a bank seems like a pain. Shouldn't I go online and get it done quickly?

Bysecuring an online loan, you'll invariably have liens placed on yourbusiness. That affects your ability to refinance, and createssignificant cash flow pressure because your monthly repayment will behigh (thanks to exorbitant interest rates).

Many online lenders are less established than traditional banks, so there's a higher possibility that they'll go out of business. Dealing with a loan from a defunct entity is not something you want to do. And keep in mind that online lenders aren't always subject to the same regulatory authorities as brick-and-mortar banks; there's a higher possibility than usual that your financial details get hacked.

Also, the loan terms will be less favorable (you'llprobably deal with things like pre-payment penalties), you'll get littleto no counseling from the lender, and you'll likely need both goodpersonal and business credit--not to mention, a few years of experiencein business to be approved.

To sum it up: No, I don't think you should get an online loan.

3. Should I consider the SBA when looking for a loan?

SBA-backedlenders offer loans of up to $5.5 million at reasonable interest rates;counseling and educating, and with generous repayment terms that can beused in a variety of ways. Examples include buying a business orbuilding; refinancing existing debt; or obtaining inventory orequipment.

The SBA doesn't make the loansitself. Instead, it provides government backing for loans made bypartner banks, credit unions, and other financial institutions. Thoseguarantees reduce lender risk, as smaller businesses with limited trackrecords aren't typically lender targets and might not otherwise qualifyfor a loan.

SBA loan interest rates vary,as of now, from 7.25 percent to 9.75 percent -- a far cry from the 20percent or above alternative lenders, including many so-called "internetlenders," will charge companies that can't secure traditionalfinancing.

So yes, they're worth considering.

Want to learn more?

I enjoyed being on-site at Inc.'sFast Growth Tour conference event in Chicago on Tuesday, and I'mlooking forward to being at the tour's next event in San Francisco onJune 6. I can't wait to meet you one-on-one, learn about your situation,and offer you customized advice.