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.

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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 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

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