Business Loans for Every Stage of Enterprise

There are several business loan options for businesses in every stage of enterprise. The particular program and amount of loan for which you and your business may qualify will vary depending on the stage and financial status of your company.

The SBA provides loan guarantees in conjunction with loans from commercial lenders in the same locality as the business applying for financing. Financing offered through the SBA and local lenders are the most common type of financing for companies in the start-up or expansion phases. 

Start-Up

Micro loans are offered by the SBA, through non-profit lending partners of the SBA, and allow the business to borrow up to $35,000 for start-up funds. These are largely credit based loans, and little or no collateral can be offered as security for the loan itself. These are also intended to be relatively short term loans, allowing the borrower to establish their company and see it through until profitability. 

Start-Up or Expansion

The SBA's 7A program includes loans of up to $500,000 to establish a business or assist in its operation or expansion. This includes the purchase of real estate, acquisition of machinery and equipment, working capital, or to refinance existing debt like a micro loan.

For businesses that have at least two years of operating history their lending options increase. After two years, most commercial banks make business loans available to borrowers without SBA guarantees. The business owner will have to submit detailed financial documents including balance sheets, profit and loss statements, and accounts receivable statements. They will also likely have to submit personal financial statements for any owner of the business controlling 20% or more of the company stock. In general, commercial banks will lend a percentage of the company's positive net worth. If the company's balance sheet suggests a positive net worth of $3 million and the lender will make a loan of no more than 20% of the company's net worth, the borrower could expect a loan of $600,000. In turn, the lender will usually seek a personal guarantee on the part of the business owner, and may also take a lien on the accounts receivables, fixed inventory, and possibly any real estate owned by the company.

Expansion and Long Term Operation

For more established businesses looking to expand there are more options still. For those companies with significant balance sheets and accounts receivables commercial banks offer many loan products. These include long term, fixed rate loans and revolving lines of credit. These are usually based on a percentage of the company's positive net worth and require documentation like that listed previously. As the business establishes a longer positive track record and history of financial success the bank will lend more money at more favorable rates. They will also allow the company to use the funds for more ambitious purposes, such as buying another business or franchise or expanding into new markets.

The SBA also offers a 504 loan program, made through one of its lending partners called a CDC, or certified development company. The maximum loan amount for this program is $2,000,000 ($3,000,000 for industrial or manufacturing purposes). Businesses can use these funds for purchasing land or improvements, renovating or construction new buildings, or purchasing long term equipment or machinery. Collateral for these loans is typically limited to the asset being financed. These loans are often ten year loans, amortized over thirty years, and carry a competitive, market based interest rate.

If your business could benefit from a cash injection call your local SBA office or speak with a business loan broker who can tell you more about local lending guidelines.