|FORTUNE Small Business:|
Finding startup cash for your business
Options abound, according to Ask FSB's experts.
(FORTUNE Small Business) -- Dear FSB: Where can I get a small start-up loan for my business?
- Mary, Slidell, Miss.
Dear Mary: When it comes to looking for money to start your business up, there are a number of options.
Most financing experts suggest looking at your own resources first. Consider borrowing from family and friends as the primary way to fund your business. Your home can also be a source of equity, using either a home equity line of credit (HELOC loans) or a second mortgage.
The Small Business Administration is usually a small business owner's first stop in looking for outside assistance. This organization does not give money to business owners directly. It sets the guidelines for loans while SBA partners - lenders, community organizations or microloan organizations - give you the money. The SBA minimizes the risk for lenders by offering guarantees.
While each bank has its own criteria, Bank of America (BAC, Fortune 500), the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses, has general guidelines.
"What we look at for a small business is the amount of time the business has been established, their personal credit history and their relationship with the bank," said Mark Hogan, president of small business banking at BofA. "Typically, we approve mature, established businesses with good personal credit history; in addition we do look to see if they have deposit relationship with the bank."
Start-up companies who might not qualify for a traditional lender's stringent standards might consider other SBA-supported loan products such as microloans or "community express" loans.
Sue Malone, principal of Strategic Business Solutions, one of the nation's leading Community Express loan providers, says finding the money you need is possible, but there is a price attached: "There are several lenders who specialize in small start-up loans that are very quick and easy, and do not require any collateral or tax returns or business plans," Malone said. "For each $5,000 one borrows, the monthly payback today is $71 per month. There is no prepayment penalty and the loan is fully amortized over the life. The borrower can come back in six months and borrow another full $25,000 without having the first loan paid off. It is a simple process. It helps develop credit in the business name and keeps the business owner from using their credit cards to start their business, which in this current climate is the kiss of death. Over the past five years, I have done over 15,000 of these loans."