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Types of Loans Available

Loan_ApplicationCommercial bank loans don't require entrepreneurs to turn over equity or company control.  In general, banks prefer to make loans of more than $10,000.  Banks like to see:
  • Good credit
  • A solid business plan
  • Ability to repay the loan
  • Collateral
Small Business Administration Guaranteed Loans (SBA): Many banks work with the SBA to provide small business loans. The SBA doesn’t loan money directly to businesses, but instead works with local banks to provide a loan guarantee. This decreases the level of risk for your bank, which then makes it easier for your bank to provide your loan. There are several types of SBA loan guarantee programs that may work for you and your banker.  Click for a summary of these loan products.

Revolving Loan Funds:
Iowa has many revolving loan programs available for small businesses. These programs typically provide loans to businesses located in specific communities or regions and are offered through many different agencies. When looking at applying for a revolving loan, it’s important to know that you will also be working with your local bank or other lending agency for the primary source of the money you need, with the revolving loan providing the additional funds to make up the ‘gap’ between what the primary lender will provide and what you need for your total project.

Microloans: If you’ve found that you are not able to obtain a bank loan for your business, you may find success through a microloan program.  Microloan programs usually offer small business loans from $5,000 to $50,000, and can also provide technical assistance to help you with your business.  Two organizations in Iowa that provide microloans are IowaMicroLoan and the Targeted Small Business Program.

Other Sources of Funds 

Line of Credit is an arrangement with your bank to lend you credit up to an agreed amount.  It’s a type of loan that doesn’t give you one lump sum like a traditional loan, but works more like a credit card in that you borrow against your line of credit when you are in need of money to cover short term expenses.

Home Equity Loans are basically a second mortgage on your home provided by a lender, which allows you to borrow money against the equity (current market value) of your home. These can be a cost-effective alternative to other types of loans because the interest rates are usually lower.  However, you have to consider that you will be risking your family home to obtain the funds.

Equipment Lease Financing
gives you access to many types of equipment – computers, copiers, cars and trucks – without tying up your cash or credit lines.  Although it doesn’t bring cash into your business, leasing can reduce the amount of cash you might otherwise need to start your business. Equipment lease financing can be provided by banks, a leasing company or equipment vendors.

Business_CashCash Advances from Credit Cards are an easy and quick way to gain access to cash, but if used for long-term financing, they can be much more expensive.  Credit card interest rates typically are much higher than rates you would pay for other types of funding – meaning you may be paying much more in the long-run.

Factoring: If your business has outstanding long-term accounts receivables, working with a factoring company might be an alternative to waiting for collection. Factoring companies buy accounts receivables at a discounted rate. This allows your company to receive cash quickly to help ease cash flow.

General Small Business Grants: The government does not provide free grant money for small business startup or expansion. BE VERY CAREFUL of advertisements that promote “free money for your business.”  These ads are misleading, and often suggest you can receive a list of grant resources by paying a fee to the advertiser.  These lists typically contain a list of microloan programs that have funds you need to repay, or list grants available only for non-profit businesses.

Grants for Nonprofit Business: Nonprofit or social entrepreneurs (people using innovative business applications to solve a social need - TOMS shoes is an example), might benefit from looking through the Iowa Community Foundation’s Grant Search and/or their Endowment Search.