Back to Business Law Financing a Business Small business start up costs are often financed with personal funds including savings, loans from family members, and even credit card advances. If a business is to grow, it is usually necessary to obtain larger amounts of financing than these methods can provide. Bank Financing Bank financing is the most common type of financing for businesses, especially small businesses.
Bank financing can take several forms.
In most instances a lender making a conventional loan will require the borrower to pledge collateral to secure the loan. Collateral may consist of a pledge of accounts receivable, inventory, real estate, and other tangible and intangible property. Additionally, it is quite common for lenders lending to privately owned companies to require the owners to personally guarantee repayment of the loan. Loans will usually be evidenced by one or more promissory notes. The term loan is the simplest form of commercial bank financing.