Eastside Business Assistance Center

Small Business Financing

When you start a business, you generally have two ways to raise capital: loans and equity contributions. There are some obvious disadvantages to loans. They require you, for example, to pay back the lender whether or not the business is successful, which is not the case with equity contributions. But the advantage of a typical loan is that if your business prospers, the lender is only entitled to an interest return on its loan -- not a percentage of the profits or a share in the company that an investor would expect.

There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision

  • Personal Savings: The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans.
  • Friends and Relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at low interest rate, which can be beneficial when getting started
  • Banks and Credit Unions: The most common source of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.
  • Venture Capital Firms: These firms help expanding companies grow in exchange for equity or partial ownership.

Whether you obtain loans from a bank, individuals or other lenders, make sure of your options and the advantages and disadvantages of each option. Most small business owners initially open their business with capital from: savings, retirements funds: (401 (k), IRA’s, Etc.), relatives, credit cards, venture capitalist or SBA business loans. Ultimately, 90% of businesses go through the route of financing some portion of their business operations, either for additional inventory, new equipment, site remodeling, payroll, working capital or other miscellaneous expenses.

The reality is that most business owners do not have large sums of money to help them overcome the slower periods; so most businesses always reach out for small business financing.

The most successful opportunity for small business owners to obtain financing would be via the SBA small business Loan program. The SBA (link to SBA.gov) assist small business lenders and owners by guaranteeing 85% of all loans distributed to approved small business borrowers; In a sense minimizing the risk for lenders and making financing a little more accessible for qualified individuals and their businesses.

SBA Loan Requirements

  • Must show ability to Repay the Loan (Profitability & Cash Flow)
  • Viable Business Plan (Exhibiting Detailed Planning if Expansion, Acquisition, or Start-up)
  • Good Credit (Exhibits Good Character and Financial Management)
  • Equity Investments (% of Cash Investment in New Business Venture/Shared risk with lenders)
  • Collateral (In the form of Real Estate Assets, Stocks, and Additional collateral)

Available SBA Programs

7 (a) Loan Program – The following are the programs that fall under 7 (a) and the amounts available.

  • SBA Express – Program Guidelines: Maximum of $150K to $250K, Strong Credit, SBA Guarantees 50%, Collateral, Faster than most SBA Loan Programs.
  • Low Doc – Program Guidelines: Maximum of up to $150K, One-Page Application, Strong Credit, Rapid Process, Start-ups included, 100 or fewer employees.
  • Pre-Qualification Program – Program Guidelines: Maximum of $250K, Flexible Uses, Interest rate Prime + 2.75 Max, Eligibility > 50%, No Bankruptcy, No Felony, Start-up Allowed, Uses an Intermediary

Micro loan, a 7(m) loan Program

  • Up to $50,000 short term loans
  • Perfect for start ups or any business that needs working capital
  • Interest Rates, Prime + 3.25 – 4.75
  • Heavily Dependent on Personal Credit
  • Must apply through an intermediary (Example, Barrio Plann

Certified Development Company (CDC), a 504 Loan Program

  • The CDC/504 loan program is a long-term financing tool for economic development within a community
  • Community Development Focus
  • Collateral – Project Assets Being Financed
  • $7.5 Million and under, Net Worth.

Financial Business Resources Online

Below are additional website resources that are highly recommended.