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Getting a start up business loan might be the biggest challenge among many that you face in the early years of you new business. Banks just don’t want to lend to new businesses that have no track record and limited capitalization; those businesses usually represent too much risk for conservative banks.
If your start up business loan is rejected at the bank it will worsen your financial situation because being turned down is going to put a major ding in your personal or business credit score. Instead of risking that set back, do what most new business owners do—approach friends and family for your start up business loan.
Making an elevator pitch—making a bare bones summary of your business plan is one minute or less—should be perfected for delivery to potential angel or venture capitalists. But when you’re trying to entice friends and family to invest with a start up business loan you’ll be making a “kitchen table pitch.”
When you’re asking for a start up business loan from friends and family you’ll have more time to deliver your business plan. Be prepared to provide detailed answers on your business’ current assets and debts; the projected revenue and plans for later financing; and how you’ll either pay them back or give them equity in exchange for their start up business loan.
If after your kitchen table pitch you’ve met only a portion of your financial needs from friends and family, you might still have to go to the bank and apply for a smaller start up business loan, but at that point you’ll be better capitalized which means you’ll have a better chance of acquiring the remainder of your financing.
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