It’s possible to borrow for a startup

It’s possible to borrow for a startup

JIMMIE WILKINS
September 25, 2007

If your business is a startup company or if
other credit criteria are not met, you may think there is no program
for you. In fact, the lender may consider your proposal but require a
loan guaranty. If you cannot provide a guarantor/co-signer, they
normally will seek this guaranty via the U.S. Small Business
Administration (thus the "SBA loan") or other state-operated program.

So,
if your company is a startup business with no track record, can you
borrow money? Yes, but. There are other factors that are mandatory,
including:

  1. Feasible
    business plan with realistic projections. Although your projected
    income and expenses are "educated guesses," you need to do your
    research and be sure that there is more emphasis on the "educated" than
    on the "guess." Minimally, you need one-year projections on a monthly
    basis and then two years on an annual basis.
  2. Management
    expertise and commitment to make the business succeed. If you don’t
    have experience in your industry and in management — chances are slim
    that any lender can take on that level of risk. Volunteer in a similar
    business, work for someone, shadow or intern with the treasurer of a
    local nonprofit board.
  1. Capital
    injection (generally a minimum of 30 percent) by the owner. So many
    times, people are frustrated feeling that "If I had that kind of money,
    then I wouldn’t be borrowing money." Look at it another way. Using your
    capital as leverage, you can borrow more capital.
  2. Collateral.
    You need to help the lender mitigate their risk. You need to be able to
    place an asset at the lender’s access to cover their loss should you
    default on the loan. They must protect their depositor’s savings.
  3. Owner’s
    personal financial strength. Without business history, the lender must
    look to your personal financial situation. Have you treated your credit
    wisely? Have you invested what you have earned in a growth asset?
  4. Credit
    history. If your company lacks credit history, more reliance is placed
    on the owner’s personal history. It is important to understand what
    type of credit you have. Check the accuracy of the credit report and be
    prepared to explain discrepancies. There are three main credit
    agencies: Experian, Equifax and TransUnion. They can be found on the
    Internet. There is a small fee to receive your credit report. You also
    can see your credit report for free (without a FICO score) from www.annualcreditreport.com.
  5. Bankruptcy.
    The majority of financial institutions will not consider companies or
    individuals that have experienced bankruptcy in the past 10 years.
    Alternative sources of financing need to be explored.
    It
    is not impossible to borrow start-up or new business capital. You just
    need to be diligent and present a clear and compelling case and
    understand the "rules of the road."
    Jimmie
    Wilkins is the director of the Chemeketa Small Business Development
    Center. The Small-Business Adviser column is produced by the center and
    appears each Tuesday. Questions can be faxed to (503) 581-6017,
    e-mailed to SBDC@chemeketa.edu or phoned in to (503) 399-5088.


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