FAQs

Financing

1. How do I obtain a grant from the Small Business Administration (SBA)?
   Please note that the Small Business Administration (SBA) does not offer grants to start or expand small businesses, though it does offer a wide variety of loan programs. While the SBA does offer some grant programs, these are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance. These grants generally support non-profit organizations, intermediary lending institutions, and state and local governments. Please visit www.sba.gov/smallbusinessplanner/start/financestartup/SERV_GRANTRES.html for more information.

2. Will the BDRC loan me money to start my business?
   Money is not made available to the BDRC to make business loans. We will help you apply for a loan and provide you the information you need to write a business plan and start the business.

3. I am a woman, minority or veteran. What programs do you have for me?
   Certain minorities are given preference in the awarding of federal, state, and local government contracts. You must be registered with the appropriate agency before you receive a preference. Visit http://www.aptac-us.org/new. Certain banks may have an internal quota for loans to minorities. You may happen to find a bank looking to make a loan to minorities.

4. What are alternative sources of financing?
   Possible alternative financing sources are: oneself, family, friends, neighborhood banks, national banks, finance companies, suppliers, customers, microlenders, and sellers.

5. Should I see a venture capitalist?
   Do not close the door on any source of financing but do not be disappointed if you are not successful with venture capitalists. Venture capitalists have many applications. They can be picky and choose only the best. Venture capitalists generally want a "piece of the action" and may want to direct certain operations. They also typically want to invest significant sums of money. Some small businesses, such as daycare centers and restaurants, do not qualify for venture capital.

6. How much money do I need to get started?
   You need enough money to acquire the location and equipment to begin the business and enough working capital to keep you going until the business is self-sustaining. The amount varies with each business. A well-written business plan will indicate how much your particular business will require.

7. How do I get a loan from the Small Business Administration?
   The Small Business Administration does not actually make loans. It guarantees a portion of loans that banks make. A borrower must apply to a lending institution for a loan. The lender will assess the risk associated with a loan and respond with either "yes", "no", or "maybe". For a "maybe", the lender will ask the SBA if it wants to carry part of the risk and guarantee a portion of the loan. There is a fee for an SBA guaranteed loan, and the interest rate is typically higher. On the other hand, SBA guaranteed loans often have a longer maturity than regular bank loans.

8. What are the different SBA loans programs?
   SBA administers three separate, but equally important loan programs. SBA sets the guidelines for the loans while SBA’s partners (Lenders, Community Development Organizations, and Micro-lending Institutions) make the loans to small businesses. SBA backs those loans with a guaranty that will eliminate some of the risk to the lending partners. The Agency's Loan guaranty requirements and practices can change however as the Government alters its fiscal policy and priorities to meet current economic conditions. Therefore, past policy cannot always be relied upon when seeking assistance in today's market.
   
   Federal appropriations are available to the SBA to provide guarantees on loans structured under the Agency's requirements. With a loan guaranty, the actual funds are provided by independent lenders who receive the full faith and credit backing of the Federal Government on a portion of the loan they make to small business.
   
   The loan guaranty which SBA provides transfers the risk of borrower non-payment, up to the amount of the guaranty, from the lender to SBA. Therefore, when a business applies for an SBA Loan, they are actually applying for a commercial loan, structured according to SBA requirements, which receives an SBA guaranty.
   
   In a variation of this concept, community development organizations can get the Government's full backing on their loan to finance a portion of the overall financing needs of an applicant small business.
    

9. What are the repayment periods for SBA loans?
   SBA guaranteed loans generally have longer repayment periods than ordinary commercial bank loans. Maximum repayment periods are: 7 years for working capital; 10 years for equipment; and up to 25 years for real estate.

10. What are the interest rates and fees on SBA loans?
    Interest rates on SBA guaranteed loans generally run from 2.25% to 2.75% over prime. The interest rate may go up to 4.75% over prime on small loans. The SBA guaranty fee ranges from 2% to 3.875%. There is also a .5% annualized servicing fee.

11. What bank should I go to for a loan?
    Go to the bank that knows you best. You may want to go to several banks and see if you can negotiate the interest rate. If you don't have a "bank that knows you best" we can provide a list of banks in your area that make SBA guaranteed loans.

12. I don't have any money. Will I get a loan? 
    Banks generally look for the borrower to provide at least 20% of the total. This percentage will likely be even higher for a startup. This is more important for some banks and less important for others. Ask your banker.

13. I don't have a good credit history. Can I get a loan?
    The bank will do a credit check on you personally and approval for your loan will take your credit history into consideration. Bankruptcies and chronic slow pays, in all likelihood, will hinder your ability to get a loan.

14. How do I go about applying for a loan?
    Ask your bank about a business loan. When applying for a loan, you typically will be asked to provide a business plan with projected financial statements. If you need assistance, ask us for an outline of a business plan and for help with the projected financial statements.
    
    Your bank will tell you what else it wants: such as copies of tax returns, personal financial statements, copies of historical financial statements, if applicable, and other documents it deems necessary.

15. I have been making a profit but have not shown it on my tax return. What will a bank think about that?
    The bank will not look favorably on tax evasion. Furthermore, it will probably be very difficult to obtain a loan if you are not showing a profit.
    

16. I don't like the bank prying into my business.
    If you borrow money from a bank, it will want to know everything it can about you before it lends you any money and while you are paying it back. If you don't want to provide the bank with information, you will need to consider alternative sources of financing.

17. I need a certain amount of money each month to provide for my family. Will the bank allow me to take this out of the business?
    Include your monthly withdrawals or salary in your business plan and be prepared to discuss this with your bank.

18. Why does the bank want so much information?
    It is using the information you provide to determine your ability to repay the loan.

19. What are the C's of credit?
    The C's of credit, which many lenders consider when reviewing a loan application are: character, capital, capacity and coverage, collateral and circumstances. These are given different weights by different banks and are considered along with other factors.

20. I have a bankruptcy in my past. Will it be a problem for me in getting financing?
    Bankruptcy can hinder your ability to obtain loans. Talk with you bank to explain efforts you have made to restructure your debts.

21. What is the prime rate? Where do I find it?
    It is the public base rate on corporate loans from the largest banks. It appears in "Money Rates" in the C section of The Wall Street Journal every day.

22. I went to a bank and asked about a business loan for $10,000. The bank did not seem very interested.
    Banks go through roughly the same procedures for a $10,000 loan as they do for a larger loan. The fees and interest that banks charge for a loan are based on the amount being borrowed. In other words, a bank's expenses are about the same for a small or large loan, but the bank does not make as much on a small loan.
    
    To interest the bank, talk about a long term relationship with the bank including your checking account, retirement plan, short term investing of your excess funds, and borrowing in the future to finance your projected growth.