For the last few months I have been speaking with my cousin about him wanting to start his own business. He is in the military and would like to start a clothing store. We sat on the phone chatting about the best ways to get the business up and running with incurring as little cost as possible.
As we were discussing his new venture, we started talking about business loans and the opportunities for him to receive debt financing to start his new business. I asked him how much money he needed and the number he said shocked me. He said he needed about $250,000 to start the business. I thought about this for awhile and felt as if I needed to write something on the topic.
Managing SmallBusinessLoans.org and SmallBusinessLoans.com I speak with quite a few small business borrowers each month. The most common complaint that I hear is that these small business owners cannot get the proper business loans to run and fund their business. I started looking into some of these accounts and they all fell under the same scenario as my cousin. All of these small business owners have been in business for less than one year and are all looking for astronomical amounts of money.
When starting a new business you must take it one step at a time. With my very basic research, I fear that small business owners are in over their heads. They see a vision, they want to tackle the vision, but they need $250,000 to do so. As a new business owner you need to think about a few things on a more modest level.
Number 1 – When starting a new business it is inevitable that you are going to have to use your personal credit to finance the business. However, as soon as humanly possible you need to start separating your business credit from your personal credit so that you can leave your personal life alone. Your business has a credit score and report just like you do as a citizen. This business credit score can go up and it can go down just like your personal credit score. Financing your business on your business credit score means that when you pay your business bills, the creditor will only report these payments on your business credit report and profile rather than your personal credit report and profile thus leaving your personal credit score alone and away from any harm the business might bring to it.
Number 2 – During this start-up phase where you have to finance the business on your personal credit, you are only going to have access to limited capital. When dealing with your personal credit score, banks and lending institutions are going to look at your current income to current debt ratio. How much money do you personally make, and how much debt do you personally have? This will determine how much money the bank can possibly lend you personally, to fund your business. When the two numbers (income and debt) get too close together, and on top of that you have only been in business for less than one year, the bank is going to view you as a risky small business borrower and will most likely deny your business loan request.
Number 3 – If we know the first 2 points to be true, it is important that you don’t go over board when trying to seek a business loan while just starting out. If we know that debt to income ratio is a big factor for the banks and that you are going to have to start with using your personal credit score, start off by applying for a few smaller loans. Get approved for a $1,000 business credit card, or a $5,000 line of credit before you jump right into the $250,000 business loan range. If you keep yourself in good standing with these smaller loans, the same bank that gave you the loan might be more willing to increase your credit line or approve you for a larger business loan. Starting out asking for big money when you are just a start-up company is a for sure way to ruin your personal credit score, and if by some miracle you are approved, put your new business in tremendous debt with no for sure way to pay it back.
Try to crawl, walk, run into a new business when you first start out. Going for the gold right out of the gates can be tricky and very stressful. Take your business one step at a time and start small. Remember, once three banks have denied your business loan request on your personal credit, other banks will most definitely say no and your personal credit score will be destroyed.
taking on all the risk which is the reason why it must only be used for emergency’s and for a short period of time. If you are approved for a merchant cash advance loan, you must make sure you have a quick repayment strategy in mind. Holding on to this kind of commercial note will put you and your business in a very high interest rate debt situation. Once in this sort of situation, it is quite tough to get out of it.
down. Demand for business loans hasn’t gone down!!!! Credit scores might have gone down therefore the number of credit worthy business borrowers has gone down, but the amount of small business borrowers looking for a loan has gone through the roof. Here at SmallBusinessLoans.com we speak with over 800 small business borrowers each month and growing. Because of such a radical change in the economy, small business owners were forced to make hard decisions. They had to make late payments because cash wasn’t flowing like it used to. The value of certain assets has declined not allowing consumers to pull money out of their homes. There has been a complete 180 in the market. How did the banks expect business owners to react to such a changing environment?
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