Business owners often think that if they can’t get a business loan from their bank, they’re out of luck. That’s not the case. Business owners in need of financing have several options, outside of traditional bank loans.

It takes money to start and grow a business. Some entrepreneurs are able to fund their ventures with their own money, but others need a little boost. Fortunately, many different sources of loans are available to small businesses. Here’s what you need to know.

Business loans by the numbers

According to the U.S. Small Business Administration, or SBA:

• 57% of startups depend on personal savings for startup capital.
• Another 8% use credit cards.
• 8% of startups depend on bank loans.

In 2012, the typical small business used about $10,000 in startup capital. By 2016, that number had jumped to $25,000.

Where this money comes from often depends on the type of entrepreneur:

Innovation-led enterprises research and develop an innovative process or product. These businesses are most likely to seek equity investment from an angel or venture capital investor. They a’re also the most likely candidates for federal assistance, like Small Business Innovation Research (SBIR).

Second-stage enterprises have survived the startup phase. Now, owners are focused on expanding the business. Because they often have collateral and track records, these businesses are usually good candidates for bank financing and lines of credit.

Main street businesses serve the communities where they operate. Dry cleaners and coffee shops are examples of main street businesses. Most of them are funded with personal savings and cash flow. But lines of credit, SBA-backed loans and microloans are other sources of funding.

Microenterprises require less than $35,000 to start. Often, microenterprises are started by people who were laid off and want to work as consultants or by people who want to build a pathway out of poverty. Microloans, credit cards and personal savings support this type of business.

Knowing what kind of business you have can help you focus on the funding that’s right for you. Not sure how to define your business? Our Network Navigators can help.

Types of business loans

Many entrepreneurs think a bank loan is their only option. But that’s not the case at all – you actually have several financing options.

Commercial bank loans are usually more than $10,000. Banks like to see good credit, a solid business plan and the ability to pay back the loan. Banks don’t require entrepreneurs to turn over equity or control of the company. However, the funding institutions do usually want to see collateral.

Lines of credit are arrangements wherein a bank extends credit for a specific amount of money for a specific period of time. This financing is often well suited to cover expenses that fluctuate throughout the year.

Home equity loans can be cost effective compared to other kinds of loans. You’ll generally get a good interest rate, but it’s not without its dangers. A home equity loan risks your family home to fund your business.

Equipment lease financing is an avenue of funding that might not be immediately obvious. You can rent equipment without the big cash outlay that’s necessary to buy it. Lease financing can give you access to everything from copiers to cars without tying up your credit lines. It doesn’t bring in cash, but it reduces the amount of cash you would otherwise need.

Cash advances from credit cards are quick and easy ways to get cash. The catch is the interest rate. Credit card interest rates are usually a lot higher than the interest you’d pay on a bank loan. So, credit cards probably aren’t your best long-term option.

Factoring is a tool used by private companies. It allows a company to sell its accounts receivable to an outside business at a discounted rate. This enables the company to get funds immediately for operations and cash flow.

Special state loan funds are available in Missouri and Kansas. These funds support special needs and have unique guidelines.

Many banks work with the SBA to provide small business loans. Click for a summary of these loan products.

Kansas City-area loans are often available from local organizations. Eligibility varies, and some require a detailed business plan. Working with KCSourceLink Resource Partners before connecting with these lenders can save time and energy. Contact our help desk at 816-235-6500 for info about the available options and check out details here.

How to apply for a business loan

In the movies, you can just show up at a bank and ask for a loan. In the real world, it’s not that simple.

First, you’ll need to package your business’s financial information in a way that makes it easy for the lender to make a decision. Different organizations and programs have different requirements. But at a basic level, you’ll need to provide:

• Information about your business
• Information about the loan you’re requesting
• Financial information about your business

We highly recommend that you work with a KCSourceLink Resource Partner to prepare this information. These people are skilled in helping business owners get ready to approach lenders.

In Kansas City:

Small Business Development Center at UMKC
Phone: 816-235-6063
Email: [email protected]

SCORE – Kansas City
Phone: 816-235-6675
[email protected]

In Johnson County:

Small Business Development Center at JCCC
Phone: 913-469-3878
Email: [email protected]

Your Resource Partner will help you gather financial information like:

• Personal financial statement
• Statement of personal history
• Sources and uses spreadsheet
• Three-year projections of income and expenses

If you have an established business, you’ll need to provide three years of profit and loss statements. Startups will need to have a short business plan summary. Your Resource Partner will know what’s needed and help you make it happen.

Get personalized business loan help

Finding the right funding can make or break your business. But you don’t have to navigate loans alone – KCSourceLink is here to help.

Our Resource Navigator can help you find the organizations that can guide your funding journey. Better yet, our Network Navigators can develop a Personalized Action Plan that points you to the people and organizations that will be the best fit for you. And you won’t need a loan to cover these services – they are all available for free.