Business banking: Business stages and loan needs

Your 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 payment.

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.