Banks

While banks are in the business of lending money, they are also businesses that will expect to get a return on their investment. While personal connections may get you through the small talk with your bank's small business loan officer, it is important that you be as professional as possible during your meeting. You'll have to be realistic about your efforts as well. While it is expected that you'll be enthusiastic about your proposed venture, you'll need to back up all your sweeping statements with realistic numbers from your business plan. Finally, you'll need to emphasize to the banker that your project is a good one for the bank and that if for some reason the business does not succeed, there will be collateral to back up the loan. If the bank refuses to give you a loan, try to find out why and adjust that problem so that it does not come up again when you go to the next bank.

Loans

When you do get a loan, you will be expected to pay off the amount of the loan (also known as the principal) plus interest. One way of doing this is to repay principal and interest as part of a fully amortized loan, in which one makes regular monthly payments of a specified amount for a specific period of time. If your business is very successful, you may be able to pay off the loan early. However, depending on the loan agreement you signed and the state in which you live, you may face penalties for paying everything off early. After all, the bank counted on getting those regular payments.

You might also consider getting a balloon payment loan, in which you pay off only the interest on the loan until a specified time, when only a single, usually quite large "balloon" payment is due. While making a huge payment at the end may not be appropriate for everyone, it may be useful for a business that is just starting out and can pay only a relatively small monthly payment at first, but will have the ability to pay off the larger amount in the future.