To determine financing needs, you should first prepare a business plan with a complete set of financial projections including a balance sheet, income statement, and cash flow statement. With a properly completed business plan, you will have identified your funding needs. Banks will lend to some business start-ups if they are satisfied with your business plan, your level of equity investment, the collateral you have to pledge to the loan, and your credit history and experience. If your request is denied, ask your bank if they would consider the loan with a guarantee from the Small Business Administration (SBA).

How much money do I need to get started?

Once you have taken care of your building and equipment needs you also must have enough money on hand to cover operating expenses for at least a year. One of the leading causes of business failure is insufficient start-up capital. Consequently, you should work closely with your accountant to estimate your cash flow needs.

Should I borrow?

Yes, provided you can handle the debt and provided the borrowing will benefit your business. Handling the debt means that you will be able to repay the principal and interest without undue hardship on you or your business. By using debt, the owner’s control is not diluted as it is when money is raised by selling equity.

What do I have to do to get a loan?

When you apply for the loan, you must provide projected financial statements and a cohesive, clear business plan which supplies the name of the firm, location, production facilities, legal structure and business goals. a clear description of your experience and management capabilities, as well as the expertise of other key personnel, will also be needed.

Will the U.S. Small Business Administration (SBA) loan money to me?

Except in isolated and special situations, the SBA does not make direct loans. Its loan activity is in the form of participating loans and loan guarantees. You must deal with a bank to reach the SBA. You can think of the SBA as a level above your bank that is providing incentives to your bank to make it easier for you to get debt financing. The bank plays a major role in evaluating your loan application and in administering the loan. The bank's agreement is necessary before the SBA will get involved.

Can I get an SBA loan to refinance present debt?

Yes. Debt refinancing is allowed under the SBA programs. It is not the preferred form of SBA involvement, but it will be supported if the refinancing has a beneficial business consequence. Refinancing just to get out of a jam is usually not favored.

Does the SBDC provide financing?

The SBDC does not provide financing. Our assistance is technical and educational in nature. We work with banks and other lending agencies and organizations to assist in putting together financial projections, but the actual financing comes from outside sources.

What type of collateral do I need for a loan?

Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner’s equity contribution are also important considerations. All owners of twenty percent (20%) or more of the business are required to personally guarantee SBA loans. The SBA does not deny approval for a SBA Guaranty Loan solely due to lack of collateral; however, it can be used as a reason, in addition to, other credit factors.

What are the alternatives in financing a business?

Committing your own funds is often the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. You may want to consider family members or a partner for additional financing. Banks are an obvious source of funds. Other loan sources include commercial finance companies, venture capital firms, local development companies and life insurance companies. Trade credit, selling stock and equipment leasing offer alternatives to borrowing.

Where can I find a grant to start my small business?

Grant monies are usually not available for new venture businesses, with a few exceptions of high technology businesses. You may find grant information at your local library, The Catalog of Federal Domestic Assistance, or from the SBA.

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