Financing
The first step in determining financing needs should be to 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 you do not have sufficient collateral to borrow from a bank, the SBA might have a
loan program that would fit your need. The most popular program for small businesses
is the 7(a) program. Below is a description of that program taken from the
SBA website.
7(a) Loans
7(a) loans are the most basic and most used type loan of SBA’s business loan programs.
Its name comes from section 7(a) of the Small Business Act, which authorizes the
Agency to provide business loans to American small businesses.
All 7(a) loans are provided by lenders who are called participants because they
participate with SBA in the 7(a) program. Not all lenders choose to participate,
but most American banks do. There are also some non-bank lenders who participate
with SBA in the 7 (a) program which expands the availability of lenders making loans
under SBA guidelines.
7(a) loans are only available on a guaranty basis. This means they are provided
by lenders who choose to structure their own loans by SBA’s requirements and who
apply and receive a guaranty from SBA on a portion of their loan. The SBA does not
fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will
not be able to repay the loan in full. The guaranty is a guaranty against payment
default. It does not cover imprudent decisions by the lender or misrepresentation
by the borrower. Under the guaranty concept, commercial lenders make and administer
the loans.
Community Express Loans
SBA is now working with selected commercial lenders to provide unsecured loans for
startup and to established businesses. Under this program collateral is not required.
Grants
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,
http://www.cfda.gov
or
http://www.sba.gov/expanding/grants.html.