Starting a Small Business

May 23, 2022
Woman working on the computer. Sandy Spring Bank.

Part 2: Financing Your Business

You’ve made the decision to start your own business. You’ve built a solid team, written a strong business plan, and now you’re ready to fund your business. It’s important to remember that there is no one-size-fits-all financial solution. How you finance your business will depend on your industry, your personal financial situation, and your business goals. Here are tips to help you choose the funding option that’s right for you.

Working with a bank

Going through a bank gives you the ability to access large amounts of funding at once. However, obtaining a traditional business loan can be challenging. Business owners must have substantial collateral to back up a loan, which can be tough when you’re just starting out as an entrepreneur. At Sandy Spring Bank, we often recommend Small Business Administration (SBA) loans to fund a new for-profit small business. Here are some things you’ll need to qualify for an SBA loan:

  • Business experience
    If you want to start your own business, it’s important to show that you have experience in what you’re trying to do. Knowing how to operate a business, having a managerial background, and demonstrating your experience in the industry are key factors in securing an SBA loan.
  • Ability to invest your own money
    You must be able to inject at least 10 to 20 percent of your own money into your business to establish reasonable equity. Investing your own money shows the SBA that you’re not only committed but also confident in the future of your business. 
  • Strong projections
    Strong financial projections in your business plan and loan application will help show the SBA that you have the knowledge, experience, and understanding of the marketplace to be successful. It’s important to show how you plan to repay your loan with solid sales and cash flow projections. 
  • Good character and good credit
    The SBA wants to know that you not only pay your bills on time but are also of “good character.” If your credit is poor, you’ve ever defaulted on a government loan, or you have a criminal record, you may be disqualified from borrowing funds. 
  • Some form of collateral
    The SBA wants proof that borrowers have some “skin in the game.” Personal liquidity and assets (such as a home or marketable securities) and business collateral (such as equipment or real estate) can make your deal look stronger. However, putting substantial cash into the deal goes a long way too. 
  • An approved industry
    There are specific industries that don’t qualify for SBA loan programs. You can find a full list of these here to ensure your business venture isn’t excluded. 

While SBA loans offer great flexibility, especially for new business owners, there might be instances where a conventional loan is better for you. If you have substantial collateral or have been in business for years but are looking to expand, you may benefit more from a traditional bank loan. It’s important to have an open conversation with your bank and explore your options before making a final decision.

Other funding options

For some entrepreneurs, other funding sources might fit their needs best. No matter how great your business plan or pitch, if you don’t have money to put into your own business or have poor credit, you’ll need to look at other options. You may also need money quickly and don’t have time to undergo a loan application process. 

Family and friends can be a great source of funds when starting a business. Talk to those closest to you and see if they’d be willing to help support your new business. Of course, obtaining money from family and friends isn’t an option for everyone. Alternative lending, which is any lending outside of a traditional financial institution, such as a bank or credit union, may be your best option. This can include direct online lenders, private lenders, marketplace lenders, and crowdsourcing options (such as Kickstarter and GoFundMe). Alternative lenders can often give your small business the financial boost it needs to get started.

Do your research

Just like your attorney and CPA, a bank or lender is part of your permanent business team. It’s critical to do your research ahead of time to determine what financing method is right for you. When looking at banks, interview a few before deciding. Check out different online industry forums and see what (and who) people recommend. Attend industry networking events and seek guidance from others who have been there. 

At Sandy Spring Bank, we want to be sure you’re making the decision that’s right for you. Choosing a bank is about more than business, it’s about developing a solid relationship with a trusted advisor who will help you meet your goals, now and into the future. To talk to Sandy Spring Bank about our business lending and SBA options, please contact Jessica Butler, Business Banking Sales Manager, by phone at 410.266.3000 x6932 or email at [email protected]

Starting a Small Business- Part 1: Tips for Writing a Business Plan That Works

Learn more about how Sandy Spring Bank supports businesses.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.