want a loan but dont qualify under the banks normal guidelines, the banker may suggest that you apply for an SBA guaranteed loan. If youre approved, the SBA guarantees the bank that you will repay the loan and the bank loans you the money. While this program can work for start-ups, it is most used by business owners wanting to expand a successful business. Ask your banker if he knows about the SBA guarantee program. (See Section F1, below, for background on the SBA.)     Commercial banks sometimes lend to a start-up business, but they almost always ask for collateral to secure the loan. The most banks will usually lend a start-up is half the cash needed. In addition, they usually require that you do not borrow all or most of your cash from someone else; they want you to have as much to lose as they do. plan and loan application, and you have sufficient collateral, she may give you an interest-only loan for a short time, with the option of converting it to an amortized loan later. That means you can delay larger principal payments until your business has a chance to generate a positive cash flow. (See the discussion of different loans in Section B1, above.)     Example 1: Katherine OMalley Pertz-Walter has saved $20,000 to start the Rack-a-Frax Fastener Company, but she needs an additional $10,000. After a careful study of her business plan, a banker grants her an interest-only loan with payments to be made quarterly for one year and takes a second mortgage on her home as collateral. At the end of the year, she must repay the entire principal. Her interest rate will probably be something like the prime rate (interest rate charged the banks favored customers) plus 3%. If the prime rate is 12%, shell be paying about 15% interest, and her quarterly interest payment will be $375. At the end of the year, she will be obligated to repay the $10,000 in one lump sum.     Example 2: To continue this story, lets assume that at the end of the first year, Ms. Pertz-Walter asks the bank to convert the loan to a three-year payment schedule, including principal and interest. Based on her favorable first-year results, the bank agrees to amortize the loan rather than demand immediate repayment. She now has to make 36 equal monthly payments of $341.75. After she makes those 36 payments, the loan will be paid off completely.     Example 3: Now lets forget about Rack-a-Frax and switch to the story of a friend of mine. Peter Wong wanted to start a garage specializing in Italian cars in Santa Fe, New Mexico. He estimated that he needed a total of $50,000 to get his business started. He had $25,000 cash saved from his job as chief mechanic at an independent Ferrari garage and $30,000 equity in a house. He thought he was home free and confidently walked into a local bank to ask for a $25,000 loan.     An hour later he walked back out with his head spinning. The banker asked him a number of questions about monthly sales projections, cash flow and cash for a parts inventory. Peter hemmed and hawed. It came down to this: The banker didnt want to talk to Peter seriously until he produced a written business plan demonstrating that he understood how his business would work. After the initial shock of his bank interview wore off, Peter went to work. Putting his plan down on paper and doing a budget encouraged him to deal with a number of details he had never thought about before. When he did, he changed his plan considerably.     Finally, Peter presented his plan to the bank loan committee. This time they offered to lend him $25,000, provided he put up the other $25,000 and give the bank a second trust deed on his house and title to all equipment purchased for the shop. The bank also asked that Peter buy a life insurance policy for $25,000, naming the bank as beneficiary. He negotiated the second trust deed on his house out of the requirements and then agreed to take the package. The terms were 36 monthly payments at a floating interest rate that was calculated at the prime rate plus 3%.     By this time, Peter and the banker, whose name was Fred, had established a good relationship. When the business got off to a slow start, Peter kept Fred informed of the problems and his plans