Funding Sources

If you are starting a business or trying to grow an existing business, you almost certainly will need money. This money can come from many different sources. SCORE wants to help you identify which sources are most appropriate for your business.

Roughly speaking, investments break down into two forms: debt and equity. You take on debt when you borrow money from a lender, and pay interest on that investment. You are required to repay the money with interest over time. Or, you can take on an equity investment -- in which you sell a portion of the company to an investor in return for cash or something else of value.

Most new businesses don’t start with a bank loan. A survey reported that bank loans comprised less than 15% of start-up capital. This number goes up to perhaps 40% with existing companies with less than 20 employees. This does not mean that you should not look for a bank loan, just that it is not the only source to consider.

Start-ups often find it easier to get money from individuals or groups of individuals, while companies which have a track record of success are more apt to find an audience with institutional lenders.

Here are some options for funding your small business. And remember, it is unlikely that all the money will come from one source. It will probably come from several.

            Personal savings
            Family and friends
            Government guaranteed loans
            Offices of economic development
            Finance companies
            Venture capitalists

Personal savings

Keep in mind that most lenders won't finance 100 % of your business, so your first source of capital will probably be a loan from yourself. Few businesses are entirely funded by parties other than the entrepreneur. There are definite advantages for you here: 100% control and ownership. You own the whole company, control the show, and stand to reap the gains should your venture become valuable.

But there's a huge potential downside as well. Even the best-researched and well-run startups involve risk. And you are putting your assets on the line. It is great to read about risk-takers who take out second mortgages on their homes and borrow from their retirement funds to launch businesses that turn them into millionaires. There are far fewer stories in the news about the many people who take great risks and fail. And unfortunately, these stories are very real and very common. So while you need to trust yourself, and take the leap, be sure to consider the risk of your venture carefully when investing your own money.

Another form of personal debt is getting cash advances on your credit cards. This option is very expensive and extremely risky. Credit cards should only be used for short-term expenses, and not as a means to entirely fund a start-up business.

Family and friends

Borrowing from your friends and family is a good way for new businesses to get money. It is not uncommon for relatives to make low interest or no interest loans to family members. However, you risk alienating your family if the business falls on hard times and you have trouble repaying the loan. Be sure that you have a written agreement regarding the amount borrowed, the interest rate and how and when the loan is to be repaid.


It has been reported that the most important factor in getting a small loan is the credit history of the borrower. If you don’t have a good credit history, clear up all your credit problems before you go to a bank for a loan. Nowadays, this is usually expressed as your credit score. If you don’t know what your credit score is, find it out before you go to the bank.

There are two basic types of loans you might want to consider

Business Loans
Most small business loans are secured with company or personal assets. Lenders will usually ask for personal guarantees, as well as collateral from anyone who owns more than 20 percent of the company. The bank's reason for requiring collateral is, in part, to gauge whether you think your company is worth the risk you are asking them to take. Business loans have more strict requirements than consumer loans. For example, if your business is in tough financial times, your bank may ask you to immediately pay off the full amount of the loan, something that is unlikely to happen with a consumer loan.

Consumer Loans
Many small businesses are funded through personal loans or other loans based on personal assets. Consumer loans, home equity loans, second mortgages, mortgage refinancing, and personal loans - are easier to obtain than business loans if you have a good credit history. Some banks don't mind if you take a consumer loan and use the funds for business purposes, others will refuse to lend to you if you tell them you need the money for business purposes. Keep in mind that if you tell a banker a loan is for personal use and you use it for business, that lie constitutes an act of fraud.
Consumer loans require less paperwork than commercial loans, and the approval process is much quicker. It is also unlikely that you would be asked to pay the loan back in full if your business falls on hard times, something that can and does happen with a business loan.

Government Guaranteed Loans (Small Business Administration)

The Small Business Administration (SBA) works as a guarantor on loans to small businesses. If you are pursuing an SBA-guaranteed loan you should attempt to work with lenders in your area that partner with the SBA. Funds guaranteed or provided by the SBA may be used to build or start a business, not as a means of paying off creditors, to cash out investors, or for investment in real estate, among some other restrictions. Qualifications for an SBA loan change over time and with the nature of your business, but general guidelines for qualifying are listed below:
            Your business must meet size limits set by the SBA
            Business must be a for-profit entity
            Business cannot be dominant in its field
            Business must be independently owned and operated

SBA Loan Programs
Regular 7(a) Loan - utilizes the full SBA loan application
Preferred Lender Program (PLP) Loan - utilizes the full SBA loan application
SBA Express Loan - does not utilize an SBA loan application
504 Loan - Fixed asset financing similar to 7(a) using a Certified Development Co.

More details about SBA Loan programs.

For more information on the SBA call its Answer Desk at 800-827-5722.

Offices of Economic Development

Offices of Economic Development are state and local entities that provide financing and information on finding other sources of capital. Economic Development gives money to a lot of technology and manufacturing businesses, but programs change annually, so check with your local office. For example, if your town or city has high unemployment or low per capita income, you may be eligible for a loan because the state is encouraging businesses in your area.

Also, call Monroe, Ontario or Yates County or the City of Rochester offices to find out what local financing programs are available.

Finance Companies

Commercial Finance Companies are the companies that make many car loans. They take on higher risk commercial loans than banks and can handle commercial loans. If your small business will continually need your loan ceiling increased, a finance company may be your best bet. Some of the situations that may precipitate your need to go to a finance company are: your company is high-growth and will continually need its loan ceiling raised; your credit history is spotty; or your company has a high debt-to-worth ratio with a strong cash flow. Greater risk usually brings higher costs and finance companies are no exception. Rates and fees will be higher than banks.

Venture Capitalists

There are billions of dollars in venture capital available to a wide range of businesses at most stages of development. Venture capitalists are mostly interested in companies that have a solid track record and are expected to grow by at least 20% a year. They also want to buy into the company, not just make a loan. In addition to firm ownership, venture capitalists will also want management input in the form of board seats or executive positions.

In general, the following characteristics are what venture firms are looking for:
            Extraordinary growth potential
            Management talent and experience
            Proprietary products or services

Venture capital is out there. But, you must be able to show you've got a real winner. You must do it without fluff or a "come on, dream with me" embellishment. Therefore, you need a business plan. A good one that shows you've done your homework and know the "lay of the land.”


Angels are people with money who are looking for an investment that will give them a better return than traditional investments. They provide sums of money in the under-$200,000 range and tend to invest in their home state or region. This person could be your next door neighbor, your dentist, or a local business owner. Angels contribute capital to your business in return for partial ownership or debt repayment. As such, the degree of control and terms under which you receive seed money for your business will depend on the arrangement made between you and your angel.

The key to finding an angel in your area is networking. While you may not have an angel in your personal pool of contacts, by networking with others you can create a word of mouth campaign that reaches the ears of private investors. Seek advice from a CPA or other financial professional when considering this type of financing assistance.


Grants are available most frequently to non-profit companies, although some grants exist for "for-profit" companies. What is almost impossible to come by is a grant for a business start-up. Most grants are made available for the development of a product or service that will benefit the public or will generate a product or service the government needs.

Some state and local governments have grant money, or act as clearing houses for federal funds. Contact your state or local office of economic development to find out about these possibilities.

For more details about grants, see Ask SCORE.

Governmental Agencies

City of Rochester

City Hall, 30 Church Street, Rochester NY 14614
            Economic Development Department

            Commercial Loan Fund Program
            $25,000 to $250,000

            Section 108 Loan Program (HUD)

            Targeted Business Assistance Program
            $5,000 to $100,000

            NSN Advertising Program
            $5,000 matching grant


Monroe County

Department of Planning & Development
            Economic Development Programs
            50 West Main Street, Suite 8100, Rochester, NY 14614

            Monroe County Revolving Loan Fund
            1 West Main Street, Suite 600, Rochester NY 14603

Ontario County

Provides low-interest loans for the purchase of facilities and equipment, working capital, land acquisition, construction, expansion and improvement of land and buildings.

Yates County

Industrial Development Agency
            One Keuka Business Park, Suite 104
            Penn Yan NY 14527
            Revolving Loan Fund

The Yates County Revolving Loan makes available supplemental loans at below market interest rate

New York State

NYS Empire State Development
            Finger Lakes Regional Office
            400 Andrews Street, Suite 710, Rochester NY 14604

NY Business Development Corporation
            $50,000 to $1,500,000
            50 Beaver Street, Suite 600, Albany NY 12207

NY Loves Small Business


            Small Business Administration
            Federal Building, Room 410, 100 State Street, Rochester NY 14614

Participating Lenders receive partial or full authority to approve SBA-guaranteed loans for faster, better and more profitable service. Participating Lenders located in the Rochester Branch Office service area:

             JP Morgan Chase
            Bank of America
            Key Bank
            M & T Bank
            HSBC Bank USA
            CIT Small Business Lending
            GE Capital Small Business Finance
            Bank of Castile
            Wyoming County Bank
            UPS Business Capital
            Citizen's Bank
            Five Star Bank
            Capital One, Federal Savings Bank
            New York Business Development Corporation
            The Upstate National Bank
            Genesee Regional Bank
            The Lyons National Bank
            First Niagara Bank
            The Canandaigua National Bank & Trust Company
            WCTA FCU

Offices of Economic Development

Genesee/Finger Lakes Regional Revolving Loan Fund
            City Place, 50 West Main Street, Suite 8107, Rochester, NY 14614
            $20,000 to $200,000

Greater Rochester Enterprise
            100 Chestnut Street, One HSBC, Suite 1910, Rochester NY 14604

Ibero-American Investors Corporation
            104 Scio Street, Rochester NY 14604
            $25,000 to $500,000

Neighborhood Commercial Development

The Pathstone Enterprise Center
            400 East Avenue, Rochester NY 14607
            Loans for Small Businesses
            Up to $25,000

Urban League of Rochester
            265 North Clinton Avenue, Rochester NY 14605
            Business Development Division

For more information call SCORE at (585) 263-6473
SCORE “Counselors to America’s Small Business” is a nonprofit volunteer organization, sponsored by the U.S. Small Business Administration.