The following is a guest contribution from Devin Conner of Franchise Marketing Systems.
Okay, so you’ve found the perfect business idea, one that seems to add up from every angle and couldn’t be better for you and your future plans. The only problem is that you don’t have the capital to open the doors. Well, unfortunately this is a rather significant problem for a small business startup, particularly in today’s lending environment. There is no question, it is difficult to get a loan today for ANYTHING, much less for a small business startup.
Small business lending is one of the highest risk categories in lending practices, so now is not the time to be crossing your fingers and just ‘hoping’ that the money will come to you. The 90’s are gone … it doesn’t work that way anymore.
So how do you get a loan for small business startup today? It starts with planning, documentation and preparation … then ends with a professional and credible presentation to someone or something who has money.
1. Don’t hope. Show the bank how you will take their money and turn it into a profitable business venture. Picture the bank like any other person you would try to borrow money from. They are nervous, they need to trust you and most importantly, they need to believe that you will pay them back!
2. Don’t limit your sources. Banks aren’t the only options out there for a small business startup loan. Private investor groups exist, but generally speaking, won’t deal with you unless you are looking for over $2 million in funding. You might consider a ‘Hard Money Loan,’ but you better have a quick ramp up to cover the cost of financing.
3. Develop a great business plan that shows the capability of the business and YOU! You should plan on selling yourself as much, if not more than the business you are looking to fund. What makes you special, talented, intelligent and proven that will lend credibility?
4. You need to have the PERSONAL balance sheet to get a loan. Plan on needing to have a credit score of at least 680 and a net worth of 1.5 times what you are asking for in the small business loan. You should also have 30% of the loan to put up in collateral to the lender in this market.
5. Consider a franchise. Buying a franchise that has proven itself and has examples to validate the financial model gives you a leg up in the financing process. Franchises have a higher rate of success and isn’t that what it’s all about?