Capital financing for your business is available from a variety of sources, including
both commercial and government sources. Be prepared to request financing. Prepare a
business plan in advance of your request for financing.
Commercial banks are the most visible lenders to small business, although many savings
and loan associations also offer business loans. The lender will want to see your business
plan, including a cash flow analysis. The specific reason for the loan and your plans for
repayment will also need to be carefully spelled out. The loan officer will want assurance
that the firm’s management is capable. In short, the commercial lender wants to keep
lending risks to a minimum. Finally, don’t expect the lending institution to provide
all of your capital needs. Your banker generally wants to see at least 20 percent of your
own money up front as security to guarantee the loan.
If your chances of obtaining a business loan from a commercial source are slim you
still have several options. You can use personal assets as collateral, this means taking
out a personal loan rather than a business loan. You shouldn’t have much trouble with
the concept of mortgaging your house if you really believe in your business idea. However,
this decision should not be taken lightly, since it does put your family home at risk if
the business fails. Another option is a Small Business Administration (SBA) guaranteed
loan.
Under its guaranteed loan program, the SBA will guarantee a loan offered to an
applicant by a bank that participates in the SBA lending program. Keep in mind that the
loan application must meet both the bank’s and SBA’s loan application
requirements. In addition, the applicant’s reason for applying for a guaranteed loan
can not include credit unworthiness. The SBA has the option of being a little more lenient
about factors such as real estate value and inventory assets in the application process.
Your local SCORE office can help you determine your chances of obtaining a loan. In
addition, counselors can describe the various guaranteed loan programs the SBA offers and
suggest the loan that may make the most sense for your business. Call upon SCORE for
business counseling related to applying for a business loan.
SCORE counseling is offered as a free and confidential service. More than 3.5 million
Americans have benefited from SCORE counseling. If you are opening a new business or
writing that first in-depth business plan, complete with budgets—call SCORE. SCORE
offers a free workbook "How To Really Start Your Own Business," as part of a
three-session counseling program to help you develop a solid business plan with realistic
budget goals. For a referral to the SCORE chapter nearest you, call 1 (800) 634-0245.
