Conventional funding sources are very limited for startup businesses.  New firms typically lack the track record, assets, or equity to leverage bank loans and other commercial financing.  As a result most entrepreneurs rely on “bootstrap financing” to get their ventures off the ground.  This means using your own money (savings, family loans, friends, etc.) to finance your business.
As general parameters businesses need to meet the following criteria to qualify for loans:

  • the company should be at least two preferably three plus years old;
  • the business should be profitable (especially over the past 12-18 months)
  • the company or owner(s) should have collateral to secure loans; and
  • the company and owner(s) should have a good credit record.

There are some exceptions to these criteria.  Entrepreneurs bringing a lot of personal or business assets into a venture may be bankable.  Certain types of professional firms (ex. doctors) can show strong income to support loans.  And there are obviously a lot of high tech start ups that can attract angel or venture capital.  These are some of the few exceptions to the parameters above.

If you want t talk with a banker about loans or financing options it is helpful to pull together the following information:

  • 3 years of business tax returns;
  • 3 years of personal tax returns (for all owners with 20+ percent stake in business);
  • Personal financial statements (for all owners with 20+ percent stake in business)
  • interim financial statements (profit and loss) for the last 60 days;
  • Company and personal bank statements for the last year;
  • Current list of accounts receivable and accounts payable;
  • Copies of legal agreements (articles of incorporation, by-laws, operating agreements, leases, promissory notes, etc.);
  • A list of items being funded with loan proceeds (include invoices or purchase orders);
  • A financial projection for at least one year; and
  • A brief business plan that describes the company and the proposed expansion project (or loan request)


Rural Community Development Resources (RCDR) – is a Yakima County-based small business lender that focuses on microlending.   RCDR provides small, short-term loans to small business concerns as well as certain nonprofit organizations.  Rural Community Development Resources uses its “family of loan funds” to support emerging and established businesses.  Loans range from $5,000 to $75,000.  A borrower must submit all documents listed above to be considered for a loan and RCDR typically requires an applicant to take some of their business development classes or submit a business plan supporting their loan request.

Small Business Administration Loan Programs
The Small Business Administration offers two loan programs that are used in partnership with banks and commercial lenders.

The SBA 7A program encourages small business lending by providing repayment guarantees to banks and lending institutions that make loans to small business.  Lender that use the 7A program get a 75-85% repayment guarantee.  Financial institutions must certify that they cannot do the loan without an SBA guarantee.  The SBA 7A program allows lenders to make more small business loans and often provide better terms for borrowers.  Small businesses can borrow from $25,000 to $5 million using the 7A program.  Interest rates are typically prime + 2.25-3.00% depending on loan amounts and terms.  To obtain an SBA 7A loan you will make a request through a participating bank.

The SBA 504 loan program provides financing for major fixed assets like equipment and buildings.  Under the 504 program the SBA actually funds a portion of the project in partnership with a commercial lender.  Typically a lender will fund 40-50 percent of the project and an SBA-designated Community Development Corporation will fund 35-40 percent of the project.  The borrower benefits because the SBA financing package typically lowers the equity they need to invest in the project.  Loan terms are often more favorable too.   Small businesses can borrow from $100,000 to $5 million using the SBA 504 program.  Interest rates on the 504 loans range from 4.5 to 6+ percent depending on loan terms.  To learn more about obtaining an SBA 504 loan visit

SBA loans have certain job creation/retention requirements.  Check with a bank or lender to determine eligibility.

Comparison of SBA 7A and SBA 504 loans

United State Department of Agriculture (USDA) Loans The US Department of Agriculture’s operates a Business and Industry Guarantee program similar to the SBA 7A program.  The USDA guarantees 60-80 percent of eligible bank loans made to farmers, coops, rural businesses, nonprofits, and tribal governments.  Loan proceeds can be used for working capital and fixed assets.  Business can borrow from $100,000 to $10+ million (larger amounts must be approved by USDA).  This program helps lenders make more rural loans and borrowers typically receive more favorable loan terms compared with conventional loans.

In addition to the most common loan programs listed above there are a number of other financing tools for business:

  • Operating lines of credit;
  • Factoring;
  • Leasing;
  • Owner Financing; and
  • Crowdfunding options.

Operating lines of credit are used by businesses to cover short term temporary borrowing needs.  Like a credit card, operating lines provide a certain maximum amount of funding that the business can access at any time.  Operating lines of credit are typically extended to more established firms that have significant short term assets like accounts receivable (money due from customers) or inventory.  These assets are typically used as collateral for the line of credit.

Factoring is when a business sells its accounts receivable at a discount in return for funding to run the business.  This financing route is typically taken by companies who cannot for one reason or another obtain term loans or operating lines of credit.

Leasing equipment or facilities is another funding option.  Instead of using scarce equity or going without, there are many companies that will lease business equipment.

When an entrepreneur is interested in buying an existing business it may also be possible to get financing from the parties selling the business.  Similarly some franchises offer limited financing.

There are also some new creative “crowdfunding” financing alternatives that are becoming available due to changes in federal laws.  Most of the sites are currently more oriented to supporting causes, artists and musicians BUT there are growing opportunities to connect with online investors across the country.  Be careful with these sites.  Crowdfunding is new and while there are more online investment options available it still takes caution and due diligence to go for crowdfunding options.

Check out the Top Crowdfunding Websites.