Most businesses experience slow times now and then. In the retail industry, seasonal products must be ordered — and paid for — months before they will be sold. A short-term business loan can help even out cash flow when your accounts payable schedule is shorter than your sales cycle.

Short term business loans can also help you as you expand your business; for example, you can use it to increase your inventory in anticipation of a “strong sales month” or to buy much-needed equipment that can help you improve your productivity. You may also need short term business loans to cover unexpected expenses that occur before your payments come in; let’s say a vehicle is damaged or the restaurant you are running needs to have the roof repaired. You can also use it to fund much-needed improvements (e.g. repainting the inn you are running right before tourist season) or to finance an extended out-of-town business trip to talk with potential clients.

Short-term business loans can be a good way to raise working capital and cover accounts payable. Short-term loans can have maturations of as little as 90-120 days or as long as one to three years, depending on the purpose of the loan. In general, banks require very specific repayment plans for their short-term loans. For instance, if you took out a loan to even out your cash flow until your customers paid you, the lender would expect you to repay the loan as soon as you receive your money. In the case of short-term loans for inventory purposes, you would pay off your debt when you sell your inventory.

Short-term loans are appropriate for both new and existing businesses. When dealing with new businesses, some banks will grant only shorter-term loans, because short-term loans are less risky than loans with longer terms. That’s why it can be relatively easier to apply for a short term loan, making it a viable option even for smaller businesses.

Before a lender will grant a short-term loan, it will review your cash-flow history and payment track record. Most short-term loans are unsecured, meaning they do not require collateral. Rather, the bank relies on your personal credit history and credit score for approval.

Secured loans require collateral such as property, equipment, or accounts receivables. If you have substantial assets and are comfortable using them to secure a loan, you may get more favorable terms and interest rate. Short-term loans tend to have higher interest rates overall, but the rates usually are fixed so your rate will not rise. In addition, since the loan is repaid quickly, you pay less interest than you would on a long-term loan.

Occasionally people confuse short-term loans with business lines of credit, where you can pay off a balance and borrow funds as you need them. But a short-term loan gives you a fixed amount of money in a lump sum, and once you have paid it back, you cannot borrow more. These are just some of the factors you have to weigh while deciding whether or not to take a short term business loan.

If you own your own home and need to borrow money for your business, a home equity loan may be an option. As with any loan, there are risks, but home equity loans are unique in that if you default on your loan, you may lose both your home and your business. Borrowing against home equity has become a popular source of credit, especially for small business owners. To accommodate the demand, lenders are offering home equity credit lines in a variety of ways.

Advantages of Using a Home Equity Loan for a Business

Here are some of the advantages of taking out a home equity loan to finance your business:

· Relatively large loan amounts (up to the value of your home, less existing liens)

· Low interest rates

· Tax advantages on interest payments

There are disadvantages too, of course, in addition to putting up your home to secure your loan: you may be asked to pay up-front fees, closing costs, or annual fees. Some home equity loans also require large balloon payments at the end of the loan, while others require higher monthly payments instead. If you choose a loan with a large balloon payment, be sure you know how you will cover the expense. In some cases you may have to borrow more money to make the balloon payment.

Home equity loan terms and conditions vary, as do the needs of borrowers. Before you sign a loan agreement, contact various lenders to compare your options, and select the home equity credit line best suited to your needs.

What to Consider before signing the Business Loan Agreement

When you do find a loan, review the contract carefully before you sign. Do not be afraid to ask questions about the terms and conditions.

If you are not comfortable taking out a home equity loan, consider a second mortgage installment loan. Although these plans require an additional mortgage on your home, unlike an equity line of credit, second mortgage funds are typically loaned in a lump sum. In addition, second mortgages usually have fixed interest rates and fixed payment amounts.

Other Options

There are also lines of credit that that don’t require you to use your home as collateral. A line of credit lets you withdraw funds, as needed, for routine operating expenses up to the maximum amount of the credit line. They usually carry a much lower interest rate than credit cards but somewhat higher than bank loans. Credit lines, like bank loans, are usually only available to profitable, established businesses.

You may also be able to borrow against your 401(k) or stock purchase plan. You can borrow up to a maximum of €50,000, but not more than 50 percent of the balance in your 401(k) account. Taking a loan instead of a distribution may also help you avoid tax penalties generally associated with early withdrawals

Talk about these options with your business partner or accountant before making the decision. Remember that using a home equity loan for your business means that your own personal credit history is involved so you must be careful.

Truth is you cannot convince any investor, bank or VC to provide financing for any business that is not viable or ill conceived. After all the strength of the bank lies in the wisdom of its investments, and it is their responsibility to their depositors to ensure that the money is put into good enough projects that they can expect some level of return (or at least, assurance that it will not be lost). Banks are in fact some of the most conservative investors you can find, and you will need to make very impressive, very convincing presentation to get them to back your business. Here are some pointers.

· Format: At the early stage some VC’s will prefer to see a PowerPoint presentation. Some are accepting proposals via a audio file and if interested they will get back to you.

· Connect the dots: Make sure you clearly state in the beginning WHO the customers are, WHAT problem is being solved, and HOW the company’s product/service accomplishes it.

· Meeting: If you are meeting with them face-to-face do not let empty air dominate the conversation. Make sure you control the timing and pace of the meeting.

· Research the VC: do some research in advance. Find out who you will be meeting with and make sure they invest in your type of companies

· Follow up: Do not be timid about following up with them.

· Push for a Decision: They will want some time to think about your proposal and you will not get an immediate decision.

· Be Real: Do not pretend to be something you aren’t. Be real, be you, be authentic.

Final Thoughts

You must have confidence in your business idea and have a well thought out business model and plan. If you focus on innovation and the viability of your business model, serious investors will want to take a good look at it.

Every major decision — to invest or buy involves getting the other party to buy into your idea. To get that strong emotional buy in - you must first get their attention. This involves spending a significant amount of time preparing and thinking through what makes your business idea special, unique and viable.

If you cannot explain it clearly — how in the world can you expect someone else to understand it?! How can you expect them to invest in your idea if they do not understand it?!

Spend your time working on your pitch to get their attention. NOTE: be careful not to over inflate your business concept and viability. You must also have a good business plan that supports the statements you made trying to get their attention. Remember: a presentation that cannot stand under scrutiny will fail to get investment dollars.

After you get their attention — you have to be able to get them to understand the business idea and prove its viability. This will require a well written business plan to close the deal.

Another thing — you will need a good list of potential Investors or Venture Capital companies to pitch your idea to. Make sure you have enough good prospects so that you do not run out of prospects before you refine your business plan and presentation.

Keep smiling! If you have a viable idea, you will find money. It is just a matter of time and your ability to learn, shift and adjust.