What can I expect a bank to require if they are to lend me money?

There are various ways to seek start-up financing through conventional loans from banks. Banks will need to look at a great deal of financial information about your business; operating statements, tax returns, and many other financial documents. They will want heavy collateral in hard assets. They might loan against inventory and receivables, but they are usually concerned that those assets will go first if the business runs into difficulties. Although banks prefer to have hard assets as collateral (real estate, equipment, motor vehicles), they hope that the borrower will be able to take care of his obligations without the bank having to resort to taking possession of the collateral. The bank will require having all your banking done at that bank.

Should I consider a Home Equity Loan?

If you have sizable equity in your home, you might borrow against the equity and use the proceeds to operate your business. You must indicate on the loan application that you intend to use the money for financing your own business. Failing to do so could be considered misleading and might result in charges of fraud.

Where do I get an SBA Loan? (An SBA guaranteed loan)?

One should start out with the bank they intend to borrow from. Banks usually have all the necessary forms to originate a loan. You can also attend a free briefing at the local SBA office to learn more about the qualifications and process. see www.sba.gov/or/portland.

What is an SBA Loan?

The SBA no longer makes direct loans, but it does provide a guarantee of a major percentage of the loan to the lending bank. The amount of guarantee varies; presently it is around 90 percent.

What is Lease Financing?

A good way to obtain business equipment is to find a company who will buy the equipment needed and lease it to you, with the provision that after a period of time, usually after the end of the lease period, they will sell it to you (or extend the lease for another mutually agreed period). You will pay a premium, but you will have the means of production and can earn the money in profits to acquire the equipment.

Are there Personal Loans available and if so, from where?

Loans from relatives or friends are a source of financing. Many people are reluctant to approach a friend or relative, not wanting to risk the relationship. But if other alternatives are not available, by all means, talk to your friends. They might be glad to help, but they want some kind of assurance that they will get their money back. It is good policy to be professional, and have all agreements in writing with clearly defined perimeters, as to the term of the loan, the method of repayment, and possibly an amount or interest paid for the money. You will need to demonstrate why you need the money, how you will repay it and what the interest rate if any, would be for the loan. The more professional you can be, the more likely that the relationship can be preserved intact. But be prepared that your friends will develop a sudden interest in your business and offer unsolicited advice.

How can I get the Government to give me a loan without going through the bank?

There is a "Microloan Program" designed for smaller borrowings, from $100 to $25,000. These loans are available through local non-profit agencies, a list of which appears on the SBA website at www.sba.gov/financing. In Portland Mercy Corp NW also has a microloan program for small businesses.

How much money do I need to get started?

One of the leading causes of business failure is insufficient start-up capital. After you have determined how much you need for equipment, stocks, and facilities, make sure you have enough money set aside to cover your operating expenses (fixed and variable) for at least one year. Be sure to include sufficient funds to repay any loans you may have taken out and your salary as an owner. Successful businesses have started with less, but many more have failed for a lack of sufficient start-up funds.

Is Venture Capital a good source of funding?

Venture capital is the most expensive and demanding in condition. One must be in a particular segment of the economy, able to show great earning capabilities and a relatively short period (around five years) of projected payout. Venture capitalists want to see a capable management team and the promise that in a few years the company will be successful enough either to go public or be taken over by a larger company. They risk a lot and they want to be compensated for taking that risk.

Q&A - Financing A Startup