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Small Business Financing Sources - Page 2

Loans from Friends & Family:

Very often we find that business owners will go to the source of capital nearest to them for their financing needs.  These of course are friends and family.  This option is not such a bad thing especially if the business is a start up and the owners / partners have bad credit or do not have much experience in their industry which may make it harder for them to get business loans or venture capital.  When approaching friends and family the business owner / partner must keep in mind that while they may have known the individual for many years in a personal relationship, they should still treat them as they would any other lender.  We highly recommend that a well thought through business plan be put together and presented to potential family members and friends who may choose to either invest in the business directly in the form of equity or may choose to loan the money directly to the business or individual.  It is also recommend that a promissory note be put together that binds both parties and this note be executed by both parties, a witness preferably a notary public.

Bank (Conventional) Financing:

Bank financing comes in the form of a business loan which is also called a term loan; these loans are typically 5 years long and have an interest rate based on the prime rate and a margin which is decided upon the viability of the business, a sound business plan and the credit  scores of the guarantors.  Banks may also choose to offer the business a line of credit for their working capital requirements.  If the business plan and the credit of the guarantors is sound, banks may choose to extend out a business loan and a line of credit together.

Small Business Loans (SBA Loans):

The Small Business Administration is a government entity that has been set up with the specific mandate of promoting small business ventures.  The SBA partners up banks and guarantees a part of the loan made by the bank and stands by as the back stop against the bank taking a loss in the event of the small business owner defaulting on their obligations or business failure.  By providing the lender with this insurance for which the guarantor pays a fee, the SBA enables banks to make loans to small businesses and promotes the establishment and growth of these mom and pop shops.  Many banks have become SBA loan specialists and if they are not able to approve the loan under their own credit criteria, they will refer the loan to their SBA counterparts who many times will be able to get the same business loans done in-house as long as it is approved by the SBA.  The SBA requires a sound business plan and the plans crafted by Trident Consultants confirm to the SBA’s preferred format.

Non-Bank Financing: 

This type of financing comes from private non-bank institutions and individual.  The players in this type of lending tend to be private investors or lenders who specialize in lending to a particular business or industry; also active is the venture capital industry which will typically forward money to a business in return for an equity stake in the business itself.  Venture capital financing is very common in the technology industry and many of today’s technological powerhouses were given their seed capital by venture capitalists.  An extremely sound business plan is critical to successfully obtaining funding from venture capitalists.

Money from Foundations: 

Never rule out the possibility of getting some free money from folks looking to give it to you!  Foundations are responsible for grating money to businesses for causes from social programs to minority owned businesses.  We recommend that you take some time and visit the many foundations that we have listed to see if you could get lucky!

Small Business Owner Resource Center


Articles on the Small Business Financing Sources, the Small Business Loan Basics, small business loans Checklist and SBA Loans are incredible sources of knowledge for the small business owner.



Credit Report and Credit Score Analysis, how to Read a Personal Credit Report and all about Business Credit cover the intricacies of credit and are required reading for everybody.



The Foundation Grant Directory is a free listing of sources for grants by state. Why not look if there is some free money out there for your business. Hey - you never know!



The Business Loan Application covers every item you will need in your loan package and tells you how to get approved for business loans.



Fire your loan broker and use our Free Business Loans Bank / Lender Directory to find every bank in the country lending to small businesses.



If you are looking to start a business - look no further.  Check out the Free Incorporation Guide discussion and the State Incorporation Resource Directory.

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