There’s a lot of work to do before you go to the bank asking for a startup business loan, and whether or not you get your loan will depend on your expectations and preparations.
What to expect
• Nearly all businesses begin with personal saving and money from friends or family. In fact, unless you’ve already raised 25% of the startup costs from these sources, no bank will give you a startup business loan. If you’re not willing to put your money on the line, why would a banker?
• You’re almost certainly going to need collateral. It might be your house, your car or your inventory. If it’s any of these, don’t expect the value to match that of your cost or appraisal; if you’re unable to pay back the startup business loan, it’s going to cost the bank a lot of money to liquidate your assets. Accordingly, the bank will most likely ask for collateral equal to 150% of the startup loan.
• Showing the bank the money and collateral you’re bringing to the table is only the beginning. You have to convince the lender that your new venture is going to generate enough money in the first year to pay back the startup business loan with interest. Your business plan better be very well researched.
• Your personal credit will be an important factor in acquiring a startup business loan because a new business has no real credit history of its own. If your credit record has errors, correct them; if it has negatives, consider delaying your loan request until you’ve added positive entries and raised your credit score.
• The importance of loan officer’s impression of your character and personal attributes shouldn’t be underestimated. Part of that assessment will be based on your education, professional background and reference letter, but the rest is subjective. Even if your proposed business will allow you to work from home in your bathrobe, dress like a banker for all face-to-face meeting.
• Getting a startup business loan typically takes 60 to 90 days. If you fail to provide required information early on, expect it to take longer. The best idea is to meet with the bank in advance to get a checklist.