qprev_HBB Manual 2.qxd - Small Business BC

elatives and friends, who as a group make upmore than 50 per cent of the loansto home-based businesses. Such loans havethe same requirements and pitfalls as all debtsituations – and then some. Always getagreements about loans in writing to save latermisunderstandings and bad feelings. Make surethat all loans, including those with family andfriends, are set up with:• Proper security (explained below in Collateralor Security)• Any terms or conditions• Payment scheduleA payment schedule shows when payments willbe made on both the principal (the amountborrowed) and the interest (the amount it costs toborrow the principal). In some cases, your familyor friends may be willing to lend you moneyinterest free, or to lend money without repaymentuntil the business gets going. Still prepare apayment schedule, showing payments deferred orput off until that point. Keep your financialbackers, including friends and family, informedof your business’s financial picture on a regularbasis.Lenders and Financial InstitutionsBanks, credit unions, and financial institutionslike trust companies lend money to individualsand to companies. A loan to an individualis a personal loan. A loan to a business is acommercial loan. Conditions and terms,including interest rates, differ for the two kinds ofloans. Depending on the amount of riskassociated with a new business venture, a bankermay only be willing to give a personal loan.Home-based and new business people aregenerally considered a poor risk by lendinginstitutions, both because of the 80 per centfailure rate for new business starts, and becausethe loans needed are often small. A mortgage ona house and property is often required,at least until a business gets established. Apersonal loan is common in home-based businessstart-ups.Your spouse or partner may be unwilling to putup shared possessions to secure a home-basedbusiness loan. You may feel that this refusal tohelp you realize your dream means lack ofsupport. If that lack of support is real, it couldcontribute to business failure anyway. Better youknow about it before you get a loan rather thanafter. It may also be true that your family needsbasic security to feel confident and to be able togive you their support.Each source of funding has guidelines andconditions a business has to meet to getassistance. The guidelines are called “criteria”. Ifyou apply for funding, the first thing the programofficer does is check to see if the applicationmeets the criteria. If your business doesn’t meetthe criteria, no matter how good the plan is thatsupports your proposal or application, it can’t beconsidered. As part of your research, getinformation about such funding sources andreview them as possible sources of financing.Pay special attention to the criteria so you onlyconsider those opportunities where your situationfits the guidelines. Otherwise you’ll be wastingyour time.solutions for small business home-based business 71