How difficult is it to take out a loan for my small business?
What should I keep in mind when approaching banks? Which banks and programs are best for startups/entrepreneurs? Are there other options that I should consider? Thanks!
Getting your startup off the ground can be difficult. Money plays a great role here until you find good investors for a long term investing. But it has to be noted, many lenders don't work with startups because new businesses can be a risky investment. Though there exist other funding options like microloans, supplier credit, invoice financing, business credit cards, personal loans, personal funds, crowdfunding, payday loans (a good choice if you need money fast, though this is a short-term loan, you can find out more on https://stormgrams.com/).
Consider setting up a Solo 401k and taking a loan from your own retirement account. Be the bank: http://www.sensefinancial.com/services/solo401k/
Lots of good advice below. Even though lenders are getting aggressive again, getting funding for a start up may not be easy. If you are going to start a business in an area which you have considerable industry experience, that can be helpful. Or if you are acquiring a business which matches your skill sets and talents, that might help you get financing from banks as well.
Be prepared to pledge a lot of your personal assets to back up the loan if it is a start up or if the business you acquire has a lot of goodwill.
there are many options getting funds to your startup
banks - depend on your credit and financial history
you can also look for an investor in angellist.com
or collecting money throw kickstarter.com
the first thing and most important is to determine how much do you really need and for what. second is how much time do you expect to get it back from your business...
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Toll Free: (844) 341-9992
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Are you LLC'd or S Corp'd? And, are you currently financing your business or is your business financing itself? Do you have to give your social security number when requesting a loan? Or, is your business EIN good enough? Is your personal credit maxed out but yet you have a good credit score?
1.) Check out your local technology incubator. Part of what they do is assist you with the back end elements of your business and to match investors with companies.
2,) F&F — Friends and family. Many lenders, even investors, will ask if you've attempted to ask friends and family to invest in your business.
3.) Have you investigated the potential for obtaining a business development grant from your local village/town business development department?
4.) Have you investigated grants for industry-related organizations that could utilize the software you are attempting to develop?
5.) Have you gone to the local Small Business Development Center which is an offshoot of the SBA? They, like SCORE, can help direct you to the appropriate agencies, lenders and opportunities.
6.) Have you considered licensing your technology? In the long run you may want to license your application/game to a bigger company and sit back and collect the royalties, but you have to be highly educated about the whole licensing industry otherwise you could be taken to the cleaners.
Your getting a loan form a bank/financial institution/venture capitalist /investorwill depend on the following factors
The viability of the business
Your own personal track record and experience in the chosen area of business
The equity you are able to contribute
The documents you are able to furnish as asked by the bank.
The rapport yopu are able to establish with the person/institution providing the loan
The collaterals you are able to provide
Unless you are getting an SBA loan which is quite a cumbersome and slow and bureaucratic process conventional lending from traditional banks is very difficult to get...
You need to show performance history with net revenues and positive cash flow to seek a loan approval. In the beginning this is difficult you success in sales is not reflective on you P&L.
You need historical performance and you must have a good personal credit profile to get a loan...
Borrowing from friends and family may be a way to get a loan and or SBA financial Guarantees to enable a bank loan in the beginning
One alternative not yet mentioned is to factor your account receivables. There are many different forms, several of which act like a line of credit. Factoring ARs tends to be more expensive than a bank loan (if you can get one), but less expensive than credit card debt. While credit card debt is administratively easier, credit card debt also has personal liability where factoring ARs may or may not have personal liability. One AR factoring company in the Chicago-land area is 12Five Capital.
I have never used 12Five Capital; I am not affiliated with them either. I cannot vouch for them one way or another. But it would be a good place to start.
Often, business owners decide to solve their company's cash needs with a credit card. Using business credit cards can be great or it can cause that owner some real problems. It all depends on whether it's done the RIGHT way as we like to say at Imperium Lender. Capital One's business credit cards are no exception. The main problem with Capital One's business credit cards is that they report the monthly activity to your personal credit report.
That means using this card is essentially no different than using a personal credit card. Don't make the mistake of picking this card for your business credit needs. This is not the only lender who reports the business credit card information to your personal report. Knowing "who" the right lender is and "how" to obtain the best possible credit line and best possible terms is probably something that requires an expert. However, Capital One is not normally where you would start this process because they will not allow you any separation between your personal and business credit. Imperium Lender have lenders who are experienced and know which credit cards are right for you.
Contact me for a no cost analysis. I will give you detail after I learn what your specific goals and plans are. It's easy for anyone to give you canned advice. Only after talking with you can an intelligent answer be given. Private message me for my information.
There are alternatives, Thomas. The happy news is that, if you accept credit cards, you are able to establish a line of credit on the basis of your credit card volume. These companies generally are not banks, but are involved in the processing of the cards, so that they can recover the loan from the processing proceeds. They require less underwriting and usually have less issues with less than perfect credit scores.
I have bootstrapped, but I have also used borrowed money, and I can tell you with a good business plan, having the funds makes it move vertical much faster.
8 out of 10 SMBs are declined for a bank loan. That doesn't count the millions of SMBs that are afraid of even approaching a bank because of the onerous requirements. You've probably heard the old joke "A bank is a place that will lend you money if you can prove that you don't need it". There is some truth to it. Depending on your business you might want to try some of the alternative lenders such as BlueVine, Kabbage, and OnDeck. Each of these serves a different niche. BlueVine is great for B2B companies, Kabbage is great for B2C or retail companies and OnDeck is good for larger term loans. Full disclosure, I work for BlueVine. We provide working capital for SMBs in the B2B space. For startups specifically, besides the traditional VC route, you can also try using crowd-funding services like KickStarter, LendingClub or Prosper. Best of luck!
Loans for startups and new entrepreneurs fall into two categories:
1) Asset based loans using assets you currently own or with which you have equity and
2) Credit-based loans that do not require any specific asset, including SBA loans
The latter are much harder to obtain these days, especially for entrepreneurs and new business startups. Good credit usually doesn't translate into a new business loan, unless you have managed a similar business in the recent past and can prove that your operated it responsibly and profitably.
Asset-based loans imply that you have cash, stocks, or equity in your home for example. Stock secured no-title-transfer loans such as those offered by A. B. Nicholas (look up "stock loan" on Google) can be a great way, and no credit is required, but you need to own at least $85K worth of securities.
If you have good credit you can often get it done. Use your local bank.
Before approaching the banks for a loan, you need to have a clear picture of why you need the money and where it will take the business. You also need to understand that, what you think is a good reason for needing the money, is not necessarily going to be something that the bank will feel the same way about.
Have all your financial information in place and a clear picture of what you need and where you are going with it.
The bank will look at the total picture, without emotion, from a Dollars and Cents perspective and, if they feel that there is a valid reason for lending you the money, they will then look at what you have as surety for the loan. Your credit history and that of your company will come into play and, if everything lines up, they will loan you the money.
Mark Cuban said it best, "if you're starting a business and you're taking a loan out you're a moron!"
I agree with him. The Jobs Act of 2012 has opened up a new realm of ways to find and procure private investments from willing and ready investors.
Regulation D is a great tool to use, and if it's done right can be less expensive then taking out a loan. Procuring private investors also keeps you from having to pay huge monthly payments, which lowers your overhead and gives you that much more leverage to afford the things that [really] promote growth.
Almost every major company on Wall Street has a Reg D Offering going on right now, or has in the past. The Jobs Act was partly passed to extend this great tool to small businesses.
Before the Jobs Act it was very expensive and very confusing to conduct a Reg D Stock Sale. But now it's super effective.
I would be happy to shed more light on this if you're interested.
Loaded question as there are many variables. How much are you looking for? What is your experience in the business previously, what collateral are you prepared to offer, do you have an income outside of the business start up- ie yourself or spouse (if appropriate). Banks want to know that you understand the business, have experience, can pay them back in worse case scenario. What percentage of the loan amount are you willing to put down- assume minimum 20% of loan amount. Credit rating, any outstanding legal issues, previous bankruptcy. That should help as a starter.