Traditional Bank Financing

Going to your local bank for financing is relatively simple. Often you have already established a relationship. Even though they know you well, your local bank will want to see a business plan and financial projections. Show your company’s history, describe your collateral, detail your experience as an owner, and share pending orders for your goods and services. Traditional banks offer good rates and favorable terms, but these loans are usually the most difficult to obtain.

SBA (Small Business Administration) Financing

When pursuing SBA financing, begin with your local bank. If your bank isn’t able to provide you the funds, they can work with the SBA to back the loan. While the SBA doesn’t make direct loans (except in rare, disaster-oriented scenarios), they are active in helping local banks secure loans that would otherwise be considered too risky. The SBA has an evaluation process, and you will need to provide a business plan and financial projections. There also may be extra fees involved. SBA loans are still helpful, offering competitive rates and terms, and expanding your opportunities beyond what a traditional bank can provide.

Traditional Loans From Non-Traditional Sources

In Rush County, non-bank organizations serve the community by offering funding options for locally based businesses. These organizations evaluate loans just as banks do, but are able to relax qualification standards if needed. Community-administered funds often include revolving loan programs, which are established through a government organization and offer competitive loan terms. Be prepared with a business plan and financial projections before beginning the application process. Current options include:

Rush County Economic & Community Development Corporation – Revolving loan program provides loans in the $10k to $40k range for qualifying businesses.

Innovation Connector – Revolving loan program provides loans in the $10k to $50k range for qualifying businesses.

Flagship Enterprise Center – SBA loans up to $250k to be used for equipment, working capital, inventory and payroll.

Personal Loans

If you have a high net worth or own valuable collateral, you can approach a traditional bank for a personal loan. Whether it’s in the form of a home equity line of credit or just a signature loan, the bank may loan you money based on your strength as a borrower. This type of loan does not require you to provide a business plan or financial projections, but it is still highly recommended that you complete these steps to help uncover flaws you may have overlooked. Rates and terms can be favorable, but this type of financing puts your personal collateral at risk.

The 401K Rollover

A small but growing industry assists entrepreneurs in properly accessing their 401k funds to finance a business. While prevalent in the franchise industry, the rollover plan can also be used to start or purchase independent businesses. This option can be beneficial to some business owners, but proceed with caution. Using this approach, you are taking all (or part) of your 401k funds that were diversified across many different companies and investing them in your one company. If you are successful, it might be a smart investment. If your business fails, you lose all of your funds. Consult a professional firm to set this up. Your CPA and lawyer may caution you on the legality of this option, and you may want to involve them in the process. Since it is your money, you would not be paying interest or accumulating debt.

The 3 Fs – Friends, Family, and Fools

If you have exhausted traditional sources of funding, you can always approach “The 3 Fs:” friends, family, and fools. These people will probably not require much of you in terms of business plan or projections because they believe in you as the business owner. This funding source can be dangerous if your business does not succeed. Your family and friends are invested relationally and want to help you, but they may not be savvy business investors and may not ask the hard questions. When these loans go poorly, the result can be hard feelings, lawsuits, and broken relationships. Fools, for the purposes of this section, are people who aren’t related to the owner and are also not professional investors or entrepreneurs. They heard your pitch and bought in, and they will be the first ones who try to get their money back out. These investors may become problematic until you return their investment. Rates and terms depend on the situation. It is estimated that between 35-40% of startups receive money from friends and family. Make sure to document everything thoroughly.

Angel Investors

If you have watched the television show Shark Tank, you have seen a version of angel funding. A wealthy person ($1M+ net worth, $200k of annual income) provides capital to a (often young or start-up) business, usually requiring ownership equity or a plan to convert it into short- or long-term debt. These people are also called private investors or seed investors. Their usual investment is between $25k and $100k, and they will be careful as they invest. While they will be looking at the business model, they will consider the business owner as the most valuable asset of the business. These investors will be looking for a return on investment (ROI) of approximately 10 times their initial investment, usually within 3 to 5 years. Angel investing can be a very challenging strategy for most businesses, but can be a good choice in the right circumstances. A quick internet search can provide additional information about angel investing and its cousin, venture capital funding.

Venture Capital

It is estimated that less than 1% of start-up small businesses receive venture capital funding, so it may not be a reasonable alternative for your business, especially in Indiana. This funding is more popular on the East Coast and in Silicon Valley, although Indianapolis is growing in opportunities. Angel investing and venture capital have many similarities, but there are some important differences. Venture capitalists often make larger investments ($7M+ is the average), have a board that makes investment decisions, and will often come in later than angel investors. They perform extensive due diligence, researching the operations and history of the business and have high return-on-investment expectations.


As the name implies, crowdfunding is gathering of investment funds from the “crowd”. The details of the crowd can be varied, but the general purpose is to spread the investment over a large number of investing fans of the business. The state of Indiana opened the door for smaller, non-accredited* investors to enter the investing game when it enacted rules in July 2014. With crowdfunding, companies can offer investing opportunities of as little as $250 (or less) to local investors who want to support a business. Companies repay investors an average return of 1.5 to 2 times their investment in a targeted timeframe of 5 years, from the revenue/profit sharing of the business. While it may sound simple, businesses must follow specific rules and regulations. It would be wise to consult a professional company, such as the Indianapolis-based Localstake, to make sure the deal is structured properly. In addition to Localstake, there other crowdfunding sites include Kickstartr, Funding Circle USA, and Lending Club, each with a unique approach to crowdfunding.

*Accredited investors are individuals with $1M+ in liquid net worth or organizations or institutions with at least $5M in assets.