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BUSINESS CREDIT FOR WOMEN, MINORITIES, AND SMALL BUSINESSES
The need for financing is a critical and perennial concern
for the owners of small businesses. Indeed, few things are as
crucial to the health of a small business operation. Many small
businesses are launched by the personal resources of their
owners. But they can quickly reach the stage where the owner
must look to the credit market for financial help in expanding
operations. The banking industry is an important source of
working capital. However, entrepreneurs may not realize that
applying for commercial credit is a more customized process
than obtaining consumer credit, and requires a great deal of
preparation by the business applicant. This brochure may help
to de-mystify the process and improve your chances of getting
the credit you need.
Types of Loans
Banks and other financial institutions can assist you by
providing funds through personal or commercial credit. Examples
of personal credit include automobile loans, credit cards, and
home mortgages. Commercial credit includes business loans; here
are some of the options:
Short-term loans are one of the most common types of
business loans and are usually for less than one year. They can
provide interim working capital for a business temporarily in
need of cash, and are typically repaid in a lump sum when
inventory or accounts receivable are converted into cash.
Intermediate-term loans are often used for a business
start-up, the purchase of new equipment, expansion, or an
increase in working capital. The maturity dates range from one
to three years.
Long-term loans generally are made for major capital
improvements, acquiring fixed assets, or business start-ups.
The term of the loan runs for periods of three to five years
and is usually based in pan on the life of the asset financed.
Repayment is usually made in monthly or quarterly installments.
A line of credit offers you the ability to borrow money
repeatedly, up to your credit limit, without having to reapply.
A line of credit is particularly important to businesses that
experience seasonal fluctuations. The lender generally will
perform a review once a year, at which time the borrower is
asked to provide updated financial statements.
The Credit Application Process
Applying for commercial credit can be tedious. It calls for
more documentation than you might initially have expected and
certainly a lot more than when you apply for consumer credit.
For lenders, extending credit to an entrepreneur usually means
customizing the loan to suit the credit needs of that business.
So don't be disheartened by the amount of paperwork needed to
accompany the application. Instead, be prepared!
Among the best assets you can bring to the lender is a
well thought-out and documented business proposal. You need to
clearly state the purpose of the loan (will the money be used
for temporary working capital, buying equipment, or expanding
facilities); the amount of funds needed and for how long; and a
repayment schedule. Your business proposal should include the
following information:
* business description that tells the nature of the
business, describes the product and its market, identifies
its customers and competition.
* personal profile that outlines the background and
experience of each of the principals in a resume.
* proposal that s
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