Many individuals cherish the dream of starting a business of their own. There is a lot that needs to be invested in a small business or a start up like experience, time, infrastructure, dedication etc. But the most important investment you require for any business is money. Many individuals tend to give up their dream of starting an enterprise due to lack of funds. Here's where small business loans step in.

Small business is a business that has a small number of employees working in it. There are different ways to get funds for the business; however, applying for a small business loan is a sensible means to choose. There are many companies and banks that provide loan for businesses and start ups. The amount is provided for different requirements of the business like -

• Start up of business
• Expand the existing business
• Buy new machines and equipments
• Upgrade latest technology
• Regularize the working capital

The business financing company runs a check of the applicant before sanctioning the loan. It checks the creditability of the organization applying for the loan and proceeds with the sanction accordingly. In case the company applying for the loan has excellent creditability in the market the loan amount will be sanctioned immediately at a cheap rate of interest. Following are the criterions that the business financing company or bank will assess the applicant on -

Credit History -
The credit history of your business will be assessed in case your firm in small or new in the market. Like the other loan options today small business loans are also based on credit scoring. In case you past record with credits are clear then you can expect you loan to get sanctioned soon.

Capability -
The business financing company judges your ability to return the amount borrowed. This is assessed by the cash flow of your company, whether it is sufficient or not to pay back the loan taken.

Capital -
The bank of the finance company will look at the investment that has gone in the company. This is basically the amount of money that has been invested in the business. It is good sign if the business owner has invested money from his/ her end to develop the business too. Also the bank will consider the amount of equity in the company and its net worth.

Collateral -
The bank may ask you to provide collateral for the loan you take to reduce their risk. In case you are unable to pay back the loan amount, the bank you seize the collateral to suffice for the loan amount. Mostly banks prefer a personal real estate of the borrower to secure a loan. Other forms of collateral can include inventory, accounts receivables, and equipment.

Character -
The bank will also evaluate the personal character of the applicant and the business history. This helps them to assume the risk involved in lending the money.

There are two kinds of small business loans you can apply for - secured small businesses loans which is granted against collateral you provide as security and unsecured small business loan that is granted without any collateral but may have a higher rate of interest. Small business loans are most beneficial in expanding and starting up a business when one does not have enough funds.