how do you get a loan to open your own business?

Question

how much does credit, age, and education play into effect?

Answer 1

In most cases, you don't. Start-up loans are very risky for the lender, so lenders don't give them out very often.

In many cases, business owners resort to using bootstrap financing (financing business with personal credit through home equity loans, credit cards, loans against life insurance policies, etc.) It has been estimated that bootstrap accounts for about 40% of all capital employed in the U.S. small business.

Answer 2

How big of a loan? If it is under $30k you can try Prosper - an online lending community...

http://www.prosper.com/join/lunyc

They are not some shady loan shop- and they have been featured in the New York Times, Money Magazine, etc.

I first read about them in Money magazine - pretty cool idea, people get together and combine their money as a community into making a single loan.

I have used them for a loan to start a small website (and pay down some high paying interest)- you will have a much better chance of getting a loan than with a bank - and probably at a much lower interest rate.

Right now I am paying 10.5% on a 15k loan- not too bad IMO. You can take loans out for up to $30k I believe.

Make sure you make out a nice profile, and come up with a fun/interesting/sob story background to make yourself look trustworthy - it will help you improve the chance that people will bid on you (oh and a photo always helps :-) )!

Try to join a group as well - it can help lower your interest rate. Don't forget Prosper checks out your credit history, so you won't be eligable for lower interest loans unless you have a great background - but you can always take a higher % rate, it will probably still be lower than a bank loan (if you could get one...).

Even if you have bad credit what you will get from the Prosper community will likely be much lower than you
will get elsewhere - and it will be a secure, safe loan - not some underhanded 'get hit with 50% suddenly' loan shop!

You can also loan out money to help others on the site. Not only will you make a pretty good return, butyour risk is fairly limited- and you can screen each applicant and choose which people you want to lend to- I have not done this yet, but I like the idea..

Good luck!

Answer 3

If you're applying for a loan and if it is a big amount, banks and even the SBA may consider other factors aside from your business credit:

- A business plan explaining what the business is

- Your background and experience in the business -- in my experience, this is KEY in the eyes of the bank because they want to make sure that you know what you are doing and that you can make the business work. If you don't have any experience with the business, have someone on board that knows the business to give banks assurance that someone will guide you

- Your credit factors because it shows your dependability and how well you handle credit. They will do a credit check on you and poor credit history may be frowned upon, or even reason for the disapproval of your loan application

- Your collateral. Banks, even SBA guaranteed loans, want the borrower to show collateral. They want to be guaranteed that somewhere somehow they can get payment from you

- Condition or terms of loans. Banks would want to know three important things: "How much money are you requesting? What will it be used for? and For how long will it be needed?" Banks oftentimes prefer to approve loans for items that can be identified, has lasting value, and can be repossessed and sold if things fail.

- Equity investment -- banks and SBA will not give you 100% of what you need. They want to see you invest your own money in the business as well, around 20% or so.

Answer 4

You've got to put a business plan in place, along with, a proforma balance sheet and personal income statement. Based on these documents, along with, your experience in the field, the financial institution will approve you for a given amount or...
It would be advisable to work with a local accounting office. That will cost you substantial $$, but will ensure what you're submitting to the bank will be accurate & professional.
Good luck.