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.

"A partnership program with U.S. Small Business Administration".
Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance. Contact Brenda Marcum, 100 Industrial Blvd, Troy, AL 36081 or call 334-674-2425.

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