Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Should you start your own small business?

By Gerri Willis, personal finance editor


NEW YORK (CNN) -- President Obama is calling on Congress to recycle $30 billion of the remaining TARP funds into a new lending program to help small business owners get loans. So, is now a good time to start your small business?

In a nutshell, this program would offer cheap money to community banks that boost their small-business lending this year. Banks with assets of less than $10 billion would be able to borrow money from the Treasury at a very low rate if they use the money to make more small-business loans this year than they did in 2009.

gerri_willis.03.jpg
CDs & Money Market
MMA 0.32%
$10K MMA 0.30%
6 month CD 0.45%
1 yr CD 0.80%
5 yr CD 1.48%

Find personalized rates:
 

Rates provided by Bankrate.com.

Experts say this type of measure is desperately needed since it's become almost impossible to get a business loan today if you aren't already well established.

One major problem: unless lenders cooperate, this initiative will fall flat. "Right now it's up to the banks who they're going to loan to," says Penni Nafus, director of the Nawbo Women's Business Center.

Here are some things that you'll need before a bank even looks at you:

  • A business plan. This includes what you want to do, how you're going to do it, what your expenses will be, your marketing plan, your suppliers. For examples of business plans, go tosba.gov and type in business plans.
  • Start up cash -- If you need to borrow less than $35,000, you'll need 10% of that amount. For amounts over $35,000, you'll need 25 - 30% of the money.
  • Good personal credit. In some cases, you'll need a credit score of 700 and above.
  • Previous experience in the industry. If you don't have any industry-specific experience, work in that field part time or volunteer.
  • 100% collateral. In a nutshell, that means putting your house on the line, so that if your business can't make it, the bank will have a place to get the money from.

Go to a bank where you have a personal relationship -- a human relationship. As you know, it's not easy to get a loan so, the closer you work with someone, the better. Credit unions are another good place to start since interest rates are typically lower.

There are also angel investors and venture capitalists, but they can be tough to find. Venture capitalists generally invest in pharmaceutical and technology ventures, and they generally want to bring in their own management team or take an active role in board management.

If the amount you need to borrow isn't that astronomical, you may also consider taking out a home equity line of credit if that option is available to you. Generally you can tap cash for a lower rate of interest than you get at a bank.

And of course, reach out to your local SCORE chapter, SCORE is a part of the Small Business Administration. Your local SCORE chapter can give you free advice on everything from constructing a business plan to finding the funding for your business.

-- CNN's Jen Haley contributed to this article.

Talkback: Have you considered starting your own business? To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.85%3.79%
15 yr fixed3.16%3.14%
5/1 ARM3.53%3.51%
30 yr refi3.82%3.78%
15 yr refi3.15%3.13%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 24,565.52 -19.91 -0.08%
Nasdaq 6,871.29 -4.51 -0.07%
S&P 500 2,658.46 -4.39 -0.16%
Treasuries 2.36 0.01 0.26%
Data as of 2:09pm ET
Company Price Change % Change
Twenty-First Century... 34.26 1.51 4.61%
Bank of America Corp... 28.90 0.05 0.19%
General Electric Co 17.67 -0.09 -0.53%
Walt Disney Co 110.23 2.62 2.43%
Ford Motor Co 12.48 -0.15 -1.19%
Data as of 1:54pm ET

Sections

More than 5% of DACA recipients have started their own businesses since enrolling the program, according to a recent survey. More

Residents of Beattyville, Kentucky, voted overwhelmingly for Donald Trump a year ago because he promised them jobs and renewed prosperity. One year later, not much has changed. But few people here are blaming him for that. More

The FCC will vote on whether to repeal net neutrality comes amid mounting protests from tech companies, consumer advocacy groups and even some Republicans in Congress. More