Business banking: Business stages and loan needs
company's place on the business life cycle will help determine the
type of loan you need. There are three basic phases in a company's
early years: seed, startup and growth.
Seed money is used for initial planning. This is where
you would do market research and create a business plan. Few small-business
owners require a lot of cash for organizing and planning, so this
step is typically self-funded.
Startup funds, used to get going in business, can
vary greatly. A desktop publishing company initially may require
only a computer, software, printer and fax, but a new restaurant
would need to lease or buy a lot of physical equipment and a location.
This phase may be financed by the owner or a commercial lender.
Banks and commercial finance companies are less likely
to lend to startups unless there is a significant amount of collateral
pledged by the owner. If your collateral doesn't meet the standards
of a conventional loan offered by a bank, your next stop should
be the Small
Business Administration. Your bank may even be a preferred lender
with the SBA, and can give you a loan under the SBA-guaranteed loan
program. The bank's risk is minimized because the government guarantees
Growth financing means you have been successful in
business and want to expand. It's usually the point at which a business
owner looks to banks and big investors for cash.