When Yemi Mobolade and Russ Ware were looking to open Wild Goose Meeting House six years ago, they learned what many budding entrepreneurs discover: It’s not easy for startups to find financing.

“We took money from our 401ks, coupled with money from close family, friends and two people from the community,” Mobolade said.

Friends and family provided loans, and the two worked out “a little bit of a higher interest rate than a conventional loan,” he said.

Many startup businesses are financed that way — through the owner’s own funds and loans from friends and family.

While bank financing is not out of the question, most banks won’t lend to startups for one simple reason: It’s too risky. Banks are more likely to lend to established businesses with proven track records.

There are other sources of funding for startups and for expansion, purchase of real estate and equipment, and purchase of businesses, including SBA financing, microloans, factoring, lines of credit, outside investors and crowdfunding.

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No matter the lender or type of financing, a successful loan often depends on preparation: determining that a lender is appropriate for your business; understanding the process and making sure you provide all of the information the lender requires; and being aware of potential pitfalls and challenges.


Many banks will not deal with startup businesses until they’ve been around for two or three years, but there are banks that will work with new businesses, said Robin Roberts, president and CEO of Pikes Peak National Bank.

Roberts is the presenter of a webinar titled “Where’s the Money? Funding Options for Starting or Growing Your Business,” offered by the Pikes Peak Small Business Development Center.

“Every bank has a loan policy … that defines where their tolerance level is for startup businesses,” Roberts said. “And when we talk about startups, it’s important to differentiate between a startup lifestyle business, where there is an existing business model that generates revenue immediately, versus a growth startup, where it may be a brand-new business model or a disruption of a business model, and revenue may not be achieved for two or three years.

“In that second case, that’s not appropriate for bank financing, because banks are going to require payment starting within 30-45 days and monthly thereafter. … A franchise is a business model that has been proven successful and it’s just being replicated. So a franchise is definitely appropriate for bank financing.”

Most startups, however, are financed through personal investment such as savings, retirement accounts, home equity financing, credit cards, personal loans against personal assets and sale of assets.


Roberts describes other types of funding sources in her SBDC presentation.

The Small Business Administration does not make loans but provides partial or full guarantees for loans made through banks.

There are two main SBA loan programs: the 7a, for purchase of equipment, business expansion or purchase of a business; and the 504, for purchase of commercial real estate or long-term investment in equipment.

These loans often have prepayment penalties, but they may require lower down payments than conventional loans, and lenders who offer them may have programs for veterans.

Microlenders like Accion and the Colorado Enterprise Fund are a possibility for business owners who have been turned down by a financial institution.

Colorado Enterprise Fund provides discounted loans for working capital, inventory, property improvements and purchases of businesses or commercial real estate under the Veteran Access Loan Opportunity Resource program. Accion also offers discounted loans for veterans and active-duty service members.

Businesses that generate commercial invoices can raise funds by selling their accounts receivable for a discount to a lender, who then collects the invoices. This process, known as factoring, can reduce the time that invoices are outstanding, but the creditworthiness of customers can be more important than the owner’s.

Seasonal businesses and those who work under contracts can benefit from lines of credit. Borrowers pay interest monthly on principal they draw; principal payments are made in accordance with the business cycle.

Both startups and newer businesses with few tangible assets and products or services in the R&D stage may obtain funds from private investors or venture capitalists. Investors look for high growth potential and generally take a percentage of ownership in the company in return for a cash infusion.

Businesses also can go the crowdfunding route, but they risk not being able to raise the required amount of funding.


“One of the things that probably gets under the skin of lenders most is borrowers coming to them with a lack of preparation — not having current financial data, not having researched the cost of their project very thoroughly,” said Douglas Adams, executive director of Pikes Peak Regional Development Corp.

The organization provides financing through the SBA 504 loan program for real estate and long-term assets and administers loans through a contract with the El Paso County Business Loan Fund that can be used for real estate projects, working capital and business acquisitions. It also has its own private capital that may supplement the other programs or be used outright.

Being prepared also means knowing you’re applying to the right lender.

“Some institutions have a preference for one industry over another,” Adams said. “If you’re a hotel operator, you wouldn’t want to apply to an institution that doesn’t like hospitality credits.”

How do you find out a lender’s preferences?

“Interview the lender,” Adams suggests. “Some lenders will tell you, some won’t. If they’re good lenders — and most are in this community — they’ll tell you, ‘We’re at our limit on hospitality credits.’”

Business owners should be prepared to prove their creditworthiness when applying for a loan, said Tammy Fields, senior vice president, economic development at the Colorado Springs Chamber & EDC.

“Then it depends a lot on your business plan,” she said. “You have to have your act together. [Lenders] need to know what you’re planning to do and how is this going to pan out.”

The business plan a prospective borrower presents to a lender should include financial projections and should clearly define the business’s human assets.

“I recommend that there’s an area for the management team to talk about their experience,” Roberts said. “That is a really important part of a business plan and shouldn’t be just a couple of sentences.”

Roberts also suggests that “if there are advisers to the business, people who have been helping the business owner to get their idea on paper and validating it, they should list those advisers.” An example would be a mentor at SCORE.

“Having those advisors listed shows that you know you can’t necessarily do it alone and that you have gotten help from those who have done this before,” she said.

Besides a business plan, borrowers should be prepared to provide three years of tax returns and a personal financial statement.

“If you’re thinking of leasing a space, provide a copy of the lease or letter of intent for the lease,” Roberts said.

Business borrowers also will be required to have insurance in place, including insurance on collateral if they’re putting up collateral for the loan. When the borrower is the business, for example, a doctor, attorney or chef, the lender may require that the borrower have life insurance that is assigned to the lender.

“Businesses definitely need to do their homework,” Fields said. “You should be engaged in conversations with an accountant and probably with an attorney to make sure that you have your bases covered, so that everything is really spelled out and there’s no ambiguity in terms.”

There are many resources for entrepreneurs who need to develop or revise their business plan. COSOpenForBiz.com, a website developed by the chamber and a group of partners including Mobolade, provides a road map for startups, including information on building a business plan and finding financing. The SBDC also provides a wealth of information and resources about business planning, and can provide one-on-one counseling for business owners seeking financing.


Business owners should realize that a commercial loan differs in significant ways from a consumer loan, which Roberts outlines in her SBDC presentation.

Unlike a consumer loan, payments on a commercial loan are not reported to credit bureaus. Whereas consumers seeking a loan qualify once and do not have to do subsequent financial reporting, business loans require annual financial reporting.

Commercial loans also generally require a personal guarantee, may have prepayment penalties and often have covenants that define an event of default, even if payments are made according to the contract.

Borrowers also should thoroughly investigate private lenders.

“There are high-priced loans we call hard money loans, often private lenders who understand the risks they are taking, and they price that risk appropriately,” Roberts said. “These loans have their place in a startup situation.”

But they are much more expensive than other types of loans both on the front end with fees and with interest rates. A normal rate for a commercial loan is in the range of 5-7 percent, or 8-10 percent for a microloan, Roberts said. A hard money loan can carry a rate of 12-14 percent.

“If you have gone the bank route and the microlender route and that doesn’t work, if hard money lending is the only option, my recommendation is not to take that option,” she said. “It’s time to take a step back, rework your business plan, do something different, maybe give it some time and revisit the process.”

The biggest mistake a business borrower can make is to take on too much debt, Roberts said.

“Don’t take on so much funding that the monthly payment obligation affects your ability to make your mortgage payment or pay your utilities,” she said.

“The opposite side of that is, once your business is doing well and generating income for you on an annual basis, it’s important then to not start taking on debt obligations on the personal side — a bigger home, a fancier car, private school for your kids — so much so that you can’t inject capital into your business in the event that there’s a downturn, or you lose your largest customer, or there’s some kind of disruption in your industry that affects your business.

“People have a hard time thinking past right now,” Roberts said, “but one thing you can always count on is change.”