Commercial Loans
Even with the restrictions in lending by banks, most small businesses depend on lenders to provide the capital to start or expand their business. The current market environment is placing a high value on credit scores, especially for startup businesses. As a general rule the banks will want to see a score of 650 or higher, so if yours is below this be sure to work on it before going to the bank. While banks will still look at scores below 650, if they agree to the loan the interest will be considerably higher.
Loan Guarantees
Despite common misconceptions, the SBA does not lend directly to businesses. Instead they provide the banks a guarantee that if your business fails they will pay the bank back a percentage of the amount depending on the program. This helps the banks when collateral or equity is less than optimal but it comes at a price. Essentially these programs are an insurance program so the loan will be more expensive with higher upfront processing fees and higher interest rates.
Revolving Loans
An often overlooked source of loan funds are through revolving loan programs. These programs are funded by entities such as the Small Business Administration (SBA), United States Department of Agriculture (USDA), Economic Development Administration (EDA) and several others. These funds are given to intermediaries such as cities, towns, counties, economic development agencies, not for profits, etc to loan to businesses and create and grow jobs. Rates are typically lower than banks and they will cover a portion of the project which varies by program. These funds are difficult to find but www.businessloanfunds.com is a great source for finding programs in every county.
Credit Cards
Credit cards are an often used source of business financing but they can get a business owner in trouble if not managed properly or if things don’t go as planned. If things go wrong and additional financing is needed and you need additional credit, banks typically won’t even entertain an offer as credit card debt is rarely refinanced.
Savings
Savings is the best place to get the money to start your business. Not only do you not have to pay it back but you also aren’t saddled with interest. Often it is best to put off starting your business until you have more cash thank you think you need because things rarely go as planned and the extra cushion will takes stress off. Typically in the startup phase business owners put all of their cash into starting the business, leaving little wiggle room and never get the chance to get their business off the ground.