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If you do choose a traditional bank loan route (from so-called “Ce-Fi” or centralized finance firms), most of them are more than willing to lend money to local businesses, provided that they can present convincing business plans. The simplest arrangement: a standard commercial loan. In this case, the bank loans you the money, and you pay it back, usually in monthly installments and with interest. But you can find all sorts of variations on this theme, from real estate loans on commercial property to loans secured by your inventory or accounts receivable and even to your personal assets such as a home (see Chapter 11 for more info). If business assets secure the loan, you usually pay a lower interest rate.

If you don’t intend to use all the money at one time, consider applying for a commercial line of credit. A credit line allows you to draw on the funds when you happen to need the cash. Given a firm’s circumstances, banks don’t usually require collateral to secure small lines of credit. Larger lines (some banks loan up to $10 million or more) are typically secured against accounts receivable, inventory, machinery and equipment, or real estate.

A quick note for our global fans: Many other nations have comparable lending programs for small business owners or entrepreneurs in their own countries, especially in emerging markets. Quite a few of them have developed impressive micro-lending facilities designed specifically for small, even tiny, businesses. See, for but one example, a program offered by FNB Bank, a leading financial institution in South Africa: www.fnb.co.za (and then click on “For My Business” on the top line menu bar). For a more comprehensive list of such opportunities, see www.kiva.org; this is a Silicon Valley–based nonprofit organization that connects worthy small-business entrepreneurs with lending resources both domestically and internationally.

Regardless of the source, by securing an external loan to fund your company, you get to use one of the greatest things ever invented: OPM — that is, Other People’s Money! Using this channel to build up your business means you get to keep all the growth and profits for yourself — at least in theory. But it doesn’t mean that borrowing money is without risk. Somebody has to pay back the loan, after all, and that somebody is you and/or your business entity. To minimize your risk, make sure that the business idea is fundamentally sound and that you have a solid business plan in place. Rest assured, your lenders will also do the same. And those papers you need to sign? They are legal documents that can impose significant penalties for noncompliance with terms. Be sure to read the small print before giving your John Henry, or your next job might be making license plates.

And it’s always worth asking one further question: If you put up your own funds to get the business going, can you afford to take the loss if it fails? See our comments about credit-card borrowing in the previous section. We don’t want to be the ones who yank out the punch bowl just as the party’s getting started, but we also don’t want you to have to run for cover whenever you encounter that former family member or friend who you haven’t been able to re-pay (or worse, end up in some modern version of debtors’ prison).