Getting a startup loan in tough financial times

Times are tough. The ability to get credit for a business startup is difficult in the best of times, because startups are the riskiest kinds of loans, from the viewpoint of a bank. In tough times, you may think you will never get a loan, but there are still some ways to improve your chances.

Keep in mind that banks are in business to loan money. It is what they do and how they make their money to remain profitable. Your job is to make it easy for them to loan that money to you. How do you do that?

1) Make certain that you have all your personal financial papers in order. Prepare a personal financial statement, using the SBA format (http://www.sba.gov/sbaforms/sba413.pdf). List everything, including your student loan debt. Prepare a realistic personal budget for living expenses during startup.

2) Check your credit score (the FICO score) and improve it if necessary. In tough financial times, banks have higher requirements for lending; what might have been acceptable when money was easy to get won’t be now. If you don’t have a score over 700, you may have to wait a while to get that score up, or find a co-signer with impeccable credit.

3) Speaking of co-signers, get yours lined up now. It is likely that the bank will want someone else to personally guarantee your startup loan. This person should have fantastic credit and some solid assets that can be pledged.

4) Lower your expectations. The less you need to borrow, the better your chances of getting that loan. Review your financial requirements and cut them down to the absolute essentials. Pictures on the walls may have to wait until you have cash, next year. Hold off on that new x-ray equipment and find someplace locally to take x-rays. Cut down on first-year expenses as much as possible.

5) Be prepared to have cash to put on the table. To make the loan less risky for the banker, you will most likely need a “down payment” of 20 percent or more. Equipment is not the same as cash, because a banker can’t get money from equipment if you go bankrupt. Lowering your expectations also reduces the amount of cash you will need; 20 percent of $50,000 is a lot less than 20 percent of $150,000.

6) Prepare a perfect business plan and deliver it personally.
A business plan that answers all the questions is easier for the loan officer to take to the committee. Taking the plan in personally makes it more difficult for the banker to say no. Also remember that persistence pays. Keep going to bankers and revising your plan. The more banks you talk to, the more experience you get and the better your chances of finding a bank to say yes.