Funding Sources and
Information
Sources of Business Funding
Personal
Family and Friends
Private Investors
Partners
Bank Loans
Alternative
Lenders
Government Loans
Venture Capital/Angel
Investors
Grants
Personal
Cash
Checking
/Savings accounts
Equity loans
(home)
Loans based on
other personal collateral (car, equipment, CD or other
investment/insurance)
Family & Friends
Same sources as above
(Personal), but from a friend or family member.
* Be careful.
Treat professionally > Have a formal loan agreement or issue shares
in business.
Private Investors
Most often found
through networking or acquaintances.
Usually high net
worth individuals.
Financial sophistication
varies.
Ask to talk to others they
have invested in.
Most likely to work if your
proposal is related to their business.
Looking for high return and
recapture of principal within 3-5 years.
Bank Loans
Some banks loan
based on collateral, others have ability to loan to your business
plan, a few can lend fairly flexibly if you have good credit. You
will simply need ask.
SBA Loans (see
below)
Equity/ Asset Based
Loans (car, equipment, CD or other investment/insurance)
* See
Other Links and Resources
for SBS Partner Lenders
Factors a Bank
Considers:
Credit history
--
www.freecreditreport.com
Arrest record -- no felony
convictions with SBA
Cash injection --
some require capitalization (applicant provides % of own money)
Net worth -- personal
assets to collateralize the loan
Income -- working spouse
is a great asset. Fixed obligations.
Experience -- the more the
better.
Character -- rapport, how
well you present yourself.
SBA
Loan Programs -- Microloan
For
people with impaired credit (<630 Beacon Score)
Higher
interest rates.
$20K
maximum for start-ups.
$35K
maximum for existing businesses.
Need a
business plan.
SBA
Loan Programs -- 7a
Includes Community Express, LoDoc, & Pre-Qual programs
These are loan guarantees made by the federal govt.
Must have a bank partner.
You and bank are co-applicants to the SBA.
Equity injection -- at least 20%
Interest rates -- prime plus.
Guarantee fees - average 2% of guarantee amount.
Personal guarantees -- owners of 20% or more will guarantee
full amount.
Use of proceeds -- anything for a business. Maximum flexibility.
$750K cap on total loan package.
SBA
Loan Programs -- 504
Economic development program -- tied to jobs ($35K
per job)
Strictly for hard assets -- land, buildings, machinery &
equipment
Provides 10 or 20 year financing at fixed rates.
Must have a bank partner.
Funding formula for an existing business:
10% Equity
50% Bank loan
40% SBA loan
If business is less than 2 years old, equity goes up to 15%
and SBA is at 35%
If building is deemed to be special purpose or of limited use,
equity up another 5%.
May pay additional interest due to lengthy loan closing
procedure.
$1 million cap on SBA portion; can increase by $300K for
special projects.
Grants
are often very specific and/or complicated. Outside of state or
federal grants, all other sources focus on non-profit businesses,
education, and social issues.
Kentucky Business Incentives and
Financial Programs
http://www.thinkkentucky.com/KYEDC/kybizince.aspx
Kentucky
Enterprise Funds
Companies in these five industries are eligible
for funding: Biosciences, Environmental & Energy Technologies, Human
Health & Development, Information Technology & Communications, and
Materials Science & Advanced Manufacturing.
http://www.startupkentucky.com/?33
* Contact
SBS directly to apply for Kentucky
Enterprise Funds
Small Business Innovation Research and
Technology Transfer Grants
http://ksef.kstc.com/Relation/downloadFile.cfm?DocNum=112
http://www.grants.gov/index.jsp
Non-Profit Grants
http://civicengagement.nku.edu/nonprofit-development/index.php
Other granting agencies (specific
deliverables and qualifications apply):
Kentucky Agricultural Development
http://agpolicy.ky.gov/kcade/grant.shtml
Federal Grants (EDA, DOT, DOE…)
http://www.grants.gov/index.jsp
** Additional information is available on the
Other Links and Resources
Page.
(c)
2006
