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What's It Worth?

Loan guarantees cost a pretty penny, but they let you round up the capital you need -- often without surrendering equity.

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This story appears in the May 1998 issue of Entrepreneur. Subscribe »

Despite all the hoopla banks are making about the small-business market, in the final analysis, it's often a poor fit for them. There are many reasons for this: Banks are built to make large loans, not small ones. Because they are lending depositors' money, banks can only make loans where there is very little risk; there has to be plenty of cash flow and hard assets to back up a loan. And finally, banks almost always require monthly or quarterly payments on the loans.

All this is fine for the banks--it's just diametrically at odds with the experience of most small or early-stage businesses. Keeping the above in mind, consider that small businesses possess large amounts of risk and little cash flow, and they attract new business at a slow, if not random, pace.

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