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Mary Cervantes

Mary Cervantes is a columnist for the Napa Valley Register.

Just a decade ago, banks were the only source of capital for small businesses. When the financial crisis hit, banks stopped lending to small businesses.

Today, small business loans are available from many sources, including online.

Small businesses need capital to expand. Business start-ups need capital to open their door.

Typically, a commercial bank doesn’t lend to business start-ups and prefers a business to be at least two- to three-years old and requires three- to five-year financial projections.

Here’s a few start-up lending options:

Angel investors—Angel investors invest in early-stage or startup companies in exchange for a 20 to 25 percent return on their investment.

Venture capitalists—Venture capital is money that is given to help build new startups that are considered to have both high-growth and high-risk potential.

Crowdfunding—Crowdfunding on sites such as Kickstarter and Indiegogo can provide the funding for a business start-up.

These sites allow businesses to pool small investments from a number of investors instead of having to look for a single investment.

Existing small businesses need to demonstrate their ability to repay a loan whether it’s a commercial loan, SBA loan or local loan. Below is an overview from the SBA website of the Five Cs of credit which outlines what lenders consider when deciding whether or not to loan a small business money:

Capacity—Capacity to repay is the most critical of the five factors. The lender will want to know exactly how you intend to repay the loan, and consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan.

Capital—The money you personally have invested in your business is an indication of how much you’re willing lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets. In other words, to ‘have skin in the game’.

Collateral—If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment. Both business and personal assets can be sources of collateral for a loan.

Conditions – Conditions focus on the intended purpose of the loan. The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

Character – The lender decides whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. This is often based on your reputation and your credit history.

The Napa-Sonoma SBDC at Napa Valley College offers free one-on-one business advising to assist small businesses in navigating the lending landscape and to successfully find the funding right for their business.

To work with an advisor, go to to request services.

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Mary Cervantes is the business services director for Napa Valley College Napa-Sonoma Small Business Development Center. Reach her at 256-7253 or