 Our Little Tycoon knows how tough it is to borrow money when you're just starting. Our Bizmaster goes through the process of getting a bank loan and gives advice on the types of information needed.
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 Our Computer Wizard has worked overtime on this section and developed on line exercises which allow you to determine how much it will cost to get in business, a loan calculator to determine monthly payments on any loan or mortgage, and a personal financial statement which calculates your net worth.
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Once you have found a possible location, it is possible to answer the following questions.
ADVICE FROM THE BIZMASTER
(printable version)It's going to be tough to make this section exciting. Trying to raise money to start a small business has all of the worst elements of tin cup begging, hard work and a trip to the dentist. In all honesty, it's not the bankers who are boring, it's their darn forms. Get used to them. If you want the money, you will have to create a loan package that is excellent. Stick with me and I will show you how.
Contrary to popular opinion, bankers are not in business to lend money. They are in business to preserve the money of their depositors and to make money for the owners of the bank. In order to make money, they lend money for car loans, mortgages and business loans. However, the safer and more secure the loan, the more likely they are to lend the money. There is an old truth, banks love to lend money to people who do not need it.
Car loans and mortgages are fairly safe for bankers. If a person stops paying the loan, the bank repossesses the car or forecloses the mortgage. Unfortunately, second hand business equipment is not worth much and all of the business inventory may be gone. Even worse for a web business, there may be little equipment and no inventory at all. Bankers recognize business loans as relatively unsecured and are reluctant to make them.
If you want the loan, your business plan better be believable and show an excellent chance of success. Also, your financial statement better be as strong as possible. Follow the directions here and in planning for success, and your loan application will be as strong as possible.
This section is not for those seeking venture capital which can be even tougher than getting a bank loan. While knowledge on searching for information, incorporation and preparing a business plan is almost universal, getting a business loan is a personal experience far different than getting venture capital. This section is geared to small businesses seeking loans from a bank or a SBA guaranteed "lodoc" loan.
If you hate forms and are not willing to learn how to fill them out, you probably won't get a business loan unless you are so rich that you really don't need one. So lets start learning about forms by working with the one at the top of the page.
There are really two aspects when dealing with a bank. The first is getting the loan and the second is getting the bank to release the money. Just because you got the loan doesn't mean you'll get all of the money unless you keep good records.
Start by filling out the form at the top. Be generous with your estimates and be sure to get estimates on work you intend to do yourself and for equipment you already own. This will give you a fairer idea of the total value of the project. It will also help you get the loan you need if money is tight, but more about that in a moment.
First and foremost, when dealing with a bank, you cannot expect to borrow the whole amount to start the business. Also, you must have impeccable credit. The first step in the process should be to get a copy of your credit report. But which one of the three credit agencies should you use?
If you have defaulted on an education loan or are delinquent in many accounts, quit now! You are not likely to get a loan until you straighten out your credit report.Perfect credit is not necessary, but unpaid education loans and multiple lapses in monthly payments which are sent to collection agencies are hard to get around.
Generally, banks would like to lend you as little as possible. By making a small loan, they get your good will and your business without much risk. All have varying requirements on the amount you should invest and the range is generally 30% to 50% of the total amount required. The SBA uses a lower standard for your personal investment in the 20% to 30% range. The loan calculator at the end of the table above is set to 25% in the automatic calculation of the minimum personal investment.
HEY - DON'T GET BORED. Try to understand the bank's position. The more you invest, the more you will cry with them if your business fails so the harder you will work to succeed. Also, the more you invest, the more assets there will be to cover the loan if things get tough.
Most of the start-up expenses are for intangible items. The only hard asset is the equipment value. Check out the equipment value compared to the loan value by pressing banker at the top of the page. Usually, the potential recovery on defaulted loans is only ten cents on the dollar. Even worse, used equipment is valued at less than half of the value of new equipment.
Before you get started with your loan application, you might want to calculate your net worth, don't say zero- banks hate to loan money to poor people.
Every bank has a personal financial statement form. The owners of more than 20% of stock in small corporations have to fill it out. The form we use is from the SBA. Find out how to fill it out and how much your worth is. Remember, the more you are worth, the more likely you are to get a bank loan.
NET WORTH CALCULATOR
