Business Start Up Loans

Three things you need to know about getting a loan to start a new business.

  1. Liquidity or cash is the first thing you will need. Plan to put 20%-30% of your own cash into the total cost for the new business. Also maintain cash reserves of about 3-6 months of your monthly expenses for working capital in a savings account for the business. This will tell the lender you are prepared to meet any variables that may occur during the start up phase of your business.
  2. Experience will be the next critical element of getting a start up loan funded. Make sure you can demonstrate 3-5 years of direct industry experience. This means you have either worked as an employee or manager in similar business to what you wish to start. Your management resume will demonstrate this experience. If you don’t have it you will need a business partner that does, or have strong management contracts in place with those who do have the experience needed.
  3. 100% of your loan must be collateralized. What this means to you is that a lender will want to make sure your loan has tangible recourse if you default. This could come from equity in your home to business assets. An SBA or USDA guarantee can help mitigate some of the collateral risk; however, you still must shoot for 100% collateral on start up businesses.

Starting a new business today is probably one of the most difficult loans to get funded. You will need to put much more skin in the game in order to get a credible lenders attention. Although it is difficult and the requirements are more stringent, start up loans are still being funded for select businesses. If you have the right opportunity, now can be a great time to take advantage of low interest rates and get your venture started.

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