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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-businessmarket, in the final analysis, it's often a poor fit for them.There are many reasons for this: Banks are built to make largeloans, 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 aloan. And finally, banks almost always require monthly or quarterlypayments on the loans.

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

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