Who Loans Money for a New Business?

A new business, or start-up, may need a large initial investment to get the doors open. Operating income for the first three to six months is also critical, because most businesses don't see a profit for several months. Various lenders are available to help a business with a solid business plan obtain a start-up loan.

Banks

Banks are one of the largest sources of funds for start-ups. Many banks have special divisions set up to manage start-up loans. To obtain a loan through these banks, you must have a well-structured business plan that outlines what the business is, why it will make money and what makes the business unique.

Small Business Administration

The U.S. Small Business Administration offers business-loan programs, disaster-loan programs and investment programs to give small business owners financial aid. The SBA provides backing for the loans requested by business owners; should the business owner default on the loan, the lender can file a claim with the SBA to be compensated. This guaranty program helps small businesses that would not traditionally qualify for loans.

Line of Credit

Some business owners can obtain lines of credit based on their personal credit score. Credit card companies and other personal loan lenders will loan money for a start-up based on the business owner's creditworthiness--a new business won't have an established credit score of its own.

Secured Loans

Financial institutions offering home-equity loans or other secured loans also can help a new business obtain funding. These loans are secured, which means they are based on the value of assets, so the business owner can use his home as collateral to secure the necessary funds. If the business has real estate, expensive equipment or other collateral, this also can be used as collateral.

Private Lenders

Private lenders are a large source of funds for new businesses. Family, friends or investors can provide a private, personal loan to the business owner to fund her new business. There are also organizations of private lenders who offer this type of loan without the involvement of a bank. Before working with any private lending organization, though, you should check out the company and its terms.

Resources

• Small Business Administration