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How We See It

Heath Hamberlin

Heath Hamberlin

March 1, 2012

Financing for a Small Business
By: Heath Hamberlin, Vice President & Commercial Lending Officer

Once you have reached the decision to start or purchase a small business, the next step will be to determine how you finance it. Businesses may need financing for equipment, real estate, start-up expenses and/or working capital. Business owners meet these financing needs from a variety of different sources including investors, personal assets, credit cards, friends and family, seller financing and traditional lending institutions, such as banks.

Business loans through banks are different than other loans that individuals typically have experience with, such as car or house loans. With business lending there is no set product or terms. For instance, Texas Bank and Trust tries to meet the financing needs of the individual business situation. The bank will match the appropriate lending product to what is being financed and set terms and rates based on the length of time funds will be borrowed and the credit profile of the overall financing situation. Business cash flow, the assets of the business, equity and the personal financial situation of the owners are all considerations of a business loan.

 The primary business loan types are term loans and lines of credit. An asset with a long useful life such as real estate or large machinery and equipment will typically be financed through a term loan that is paid back through monthly payments over several years. Rates on these types of loans can either adjust with the prime rate or be fixed. Working capital needs such as financing the purchase of inventory or seasonal expenses are usually financed through a line of credit. Lines of credit are typically set for one year at a time and can be drawn up and paid down to meet cash flow needs arising from accounts receivable and inventory. Lines of credit are typically interest only paid monthly and usually adjust based on the prime rate. Texas Bank and Trust also offers other products such as business credit cards that can be used to meet certain financing needs.

Many potential business owners ask about grants or government programs to help finance their business. For the most part government grants are very rarely available to help start small businesses, and I have personally never seen a local small business be able to take advantage of any grant programs. However, the government does offer some assistance through the form of loans through the Small Business Administration (SBA). SBA loans are made by banks and then guaranteed by the SBA, with both the bank and the SBA approving the terms and conditions of the loans. SBA guaranteed loans have specific rules and guidelines that will determine if they will be a fit for a particular business financing situation. These types of loans are one of many options available for business needs but are by no means the only option or even the most desirable option in many instances.

Texas Bank and Trust has a long history of seeking out and meeting the financial needs of our local business community. Starting a business is a big step and I encourage you to speak to one of our commercial loan officers or to pursue additional resources available through your local Small Business
Development Center.  




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