As a small scale entrepreneur you must be wondering how to go about funding a business you wish to start. The first port of call you can think of is your bank. However you must have noted that banks are very old fashioned when it comes to lending money. They normally give preferential treatment in terms of loans to established business enterprises than to a fledgling /emerging business or company. This is largely due to the fact that banks have to be prudent with the money of their depositors to whom they have an obligation.

Anyway once you have decided to start your own business, than the thought of beginning the business loan application process may give you an instant headache, but if you're considering investing in a franchise, then you will need finance.

Do spend some time and carry out a small study on which Banks/Lending Institutions can offer you the best possible deal on a franchise business loan. If at all possible, try to find a loan that a.) Has low interest rate; b.) Has little or zero file charges/fees; and c.) Matures over a greater period of time. You must begin by talking to lending institutions which you are familiar with you as a customer, such as banks where you may have an account.

When you meet with their agents/representatives, you need to have a solid business plan drawn up. You also need to insure that all outstanding debts are paid up. Should your loan application be rejected due to any reason whatsoever, and then you can contact the Small Business Administration (SBA).

The SBA is a federal agency which was launched in 1953 to "maintain and strengthen the nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses." The SBA has many loan programs to help set up small businesses. (However, it must be noted that the SBA does not disburse any money is primarily only a guarantor of loans given by other institutions). The SBA assists potential franchisees with their loans by giving a guaranty, or a formal assurance to the bank or other lending institution that the debt will be covered should you default on the loan.

SBA works along with many banks.

Thus small business owners can get business loans from these partner Banks, if they have a viable business plan. The good point is that Banks are more likely to give modest sized loans than venture capitalists that are looking to disburse loans /funding on a much larger scale.

Before approaching a bank, you should have all of your required documents available, starting with your business plan. You will also need to have made available latest financial statements as well as a repayment plan. In addition you will have to arrange required collateral.

Collateral may include:

Hard goods like equipment

Real estate /Property

Stocks or bonds

Personal assets

Personal guarantees

Banks will also like to know how you are going to make your own investment in your business. Your chance for getting a loan improves if you are investing a fair percentage of the necessary start up capital into the business.

In order to improve your chances of receiving approval on a business loan from a bank you will have to supply the following information.

Exactly how this business will operate and how it will make money

Exactly how much capital will be needed

How will you repay the loan and the period of payment

Whether you are willing to take a significant financial risk in the business

Whether you are capable of handling this business

Most small businesses, in the forms of sole proprietorships or partnerships, are closely tied to the experience, know-how and overall character of the owner(s). A solid personal credit rating is therefore also important.

The Small Business Administration has offices in nearly all every major cities in the United States. You may also be eligible to seek assistance under SBA's Loan Guarantee Plan or Immediate Participation Plan. If you do qualify for one of these loan types, then the SBA guarantees the loan made by the private lender through its list of participants in the USA. In such cases the banks are more likely to sanction you a loan because the federal guarantee reduces the lender's risks. You make the monthly loan payments directly to the lender, not to the SBA.

If you later default in payment of your loan, the bank can expect to recover up to 75 to 80 percent of the outstanding loan principal from the SBA. This guarantee encourages lenders to give credit, which they otherwise would not have given.

Before you apply for a loan considers having someone objective examine your plans. In case required do go in for a second opinion from the local college. After you've taken these steps and got the necessary information, you're ready to apply.

There are several ways to get information on SBA. You could talk to your local banker or visit a Small Business Association office in your neighbourhood.You could also log into the SBA website at www.sba.gov

In many cases, the SBA may already be aligned with the franchise company in which you want to invest. You could check with the Franchisor whether or not he is registered with SBA Franchise Registry. In such a case the process of filing all required paperwork will be much easier and without the usual hassles. Your loan application will also will be expedited by the SBA.

The SBA will investigate and examine you just like a commercial bank or lending institution does before sanctioning a loan. Once again, make sure your personal finances are in order, and be ready for extensive cross examination on your experience and capability. The interviewer will question you in depth and try to get a good feel of you personally. So expect questions that will bring out your character as much as your business sense.