Manage the balance when borrowing money.

Your business plan is working and your company is growing. Now you realize that the second most important ingredient to fueling growth is raising capital. As a small business owner, here are some ways to manage your borrowing costs and obtain more loan funds.

Some of the more obvious assets you have may include your company's cash flow, personal credit cards and your individual retirement account. In addition, you may also be able to borrow on the strength of your character, management experience and customer contracts.

The best way to cultivate a relationship with your local bank is to establish a rapport before you need money. That includes maintaining balances in your accounts, not overdrawing your checking account and not using uncollected funds. Credit card loans are unsecured by the typical interest rate is 18%. Your checking account may help you get a bank overdraft line of up to $10,000. This line of credit allows you to issue checks for more than you have on deposit up to an agreed amount.

Initially, consider looking to friends and family members for loans. Loans from this group may carry a lower interest rate than commercial loans or no interest at all. Next look to banks and finance companies. The small business community is the fasted growing segment of the financial market today. Nearly one-half of outside financing for small business comes from commercial banks.

Finance companies and banks usually require personal guarantees and collateral. A source of collateral for a loan is your home. The approval rate for a home equity loan is much higher than for the average business loan because of its lower risk to the lending institution. If you can't repay the loan, the lender of a home equity loan could foreclose on your house. Interest on a home equity loan is tax deductible.

Credit grantors sometimes will grant a loan that is secured by a passbook or securities and a personal guarantee from the borrower and often the member of the family who may have control over family assets. A credit grantor looks for a successful manager with a strong resume, a good credit history and a track record that is without negatives. This is called "Character" and is given more weight then the collateral which is usually required. Another business source are economic development programs provided by state and local government devoted to the needs of smaller businesses. These agencies make millions of dollars available for loans and/or loan guarantees.

Although most of the loans are made by banks, rather than directly form the government agency, up to 85% of a loan is guaranteed by the Federal or State government. It is worth investigating the LOWDOC program, which is sponsored by the U.S. SBA and offers a simple quick approach to borrowing.

Recently there has been a surge in independent finance companies formed to provide asset-based loan and factoring to small companies. Asset-based lenders essentially make loans against accounts receivable, inventory or equipment that the lender can liquidate in the event of a default. For example, an asset-based lender generally extends up to 80% of nondelinquent accounts receivable and interest rates range from 14% to 50%. In summary, loans are based on character, managerial experience and collateral.

Loans cost money, but look for the optimal combination of price and terms, to manage your borrowing costs wisely.

Deanna Galbraith is an independent writer and business consultant based in North Hollywood.