To determine financing needs, you should first prepare a business plan with a complete set of financial projections including a balance sheet, income statement, and cash flow statement. With a properly completed business plan, you will have identified your funding needs. Banks will lend to some business start-ups if they are satisfied with your business plan, your level of equity investment, the collateral you have to pledge to the loan, and your credit history and experience.
You may have heard that there are grants or free money available to start a business. In most cases, this information is incorrect and misleading. Promoters of these programs will ask for money before they send you additional information on "grants and free money," but you will often find that what you've paid for are only photocopied lists of companies to appeal to for money, or information on grant writing that is already freely available to you through programs such as the SBA.
The SBA and SBDC organizations do not provide grants for starting or developing a business. Although there are some grants available, they are generally targeted towards specific groups, specialized organizations, or activities. These grants may be targeted to non-profit organizations or educational institutions. An example of such an SBA grant would be the Small Business Innovation Research (SBIR) program grants, which are coordinated through the SBA but are provided by other federal agencies including the Departments of Health, Education, or Agriculture. Information on the SBIR program can be obtained at http://www.sba.gov/SBIR.
Please read this article for more information about grants.
To read the article from BusinessWeek by Kerry Miller Busting the 'Free Money' Myth.
Except in isolated and special situations, the SBA does not make direct loans. Its loan activity is in the form of participating loans and loan guarantees. You must deal with a bank to reach the SBA. You can think of the SBA as a level above your bank that is providing incentives to your bank to make it easier for you to get debt financing. The bank plays a major role in evaluating your loan application and in administering the loan. The bank's agreement is necessary before the SBA will get involved.
The SBDC does not provide financing. Our assistance is technical and educational in nature. We work with banks and other lending agencies and organizations to assist in putting together financial projections, but the actual financing comes from outside sources. We have strong relationships with lending institutions that may benefit your chances of receiving funding. Having inside knowledge of these lending institutions, we can match your business, credit, and plan with an appropriate lender, increasing your odds of getting financed.