How can I establish a relationship with bankers and other investors in my community to secure a business loan?
My dream is to open a franchised hotel in the future with a business partner, but the starting cost is high. I read that a majority of the people who open a franchised hotel do it on a loan, but come up with a 30% down payment. The loan I will try to get is ten million USD, and I can get the 30% down payment through investors, as I have some people who can potentially invest enough to add up to 30%.
I am in high school now and will go to college to study business/accounting. Next year I will work at a local hotel to learn more about the business because I'm a year too young to work there now (17 yrs old). I plan to work at a hotel in college too in order to gain even more experience, and then (hopefully) get a loan and start my own with my partner.
Are there any tips to help me get a loan? I read some stuff from the WSJ (http://guides.wsj.com/small-business/franchising/how-to-finance-a-franchise-purchase/) and it said that it's unlikely to get a loan approved unless you're a prominent figure in the community or you have a relationship with a banker.
Any tips to establish myself as a prominent figure in a community or how to establish a relationship with a banker?
Another thing it said is that it's unusual to get a loan approved with unsecured collateral. My partner I don't exactly have a net worth of 10 million yet, nor do we have any credit scores because we don't have credit cards or any previous loans. Will our lack of high net worth prevent us from getting a loan? Should we buy stuff on credit cards in order to establish a good credit score?
Any tips or advice on this would be much appreciated!
You certainly have your challenges in front of you. The good thing is that you have a lot of time to realize your long term vision.
Banking relationships are just like business relationships, you will want to develop and nurture the relationship. This is done long term and with many meetings with your banker. Discuss what your long term plan is and ask what the banker will want in order to receive financial support from them in the future. A detailed business plan is an absolute must! Take the time and compile your information as you learn about the business environment. Your banker can help you with this.
To establish credit, take out some small loans over the next years and repay them as per agreement (or even a little early), even if you don't need the loan. Invest the loan proceeds into a GIC or other short term form of investment to reduce your cost. (The interest on the loan may even be tax deductible if you invest it).
Also, if the bank has a credit card, get one and use it for small purchases on occasion and pay them off when due. These easy to do items will establish a good credit history for you. Don't overdue the credit as it can overwhelm you if you aren't careful. Think of it as "smoothing the path" for your future.
Unless you have a 7 figure net worth, in addition to a minimum of a 30% cash downpayment, you will need to pledge a cash reserve of at least 12 months loan payments plus 5% of the project to cover potential cost over runs. Good luck.