New Business Cash needs

[Denise]

hello! I have been MIA for some time for too many reasons to explain or bore you with!! But I am back and trying to dive into the forum again!

I have a question on obtaining cash for a start-up business.... Most banks want you to put forth a large chunk of cash and then they will in turn loan you the remainder of your cash needs.

Problem is, we do not have that large chunk of cash to put up! If we did, we wouldn't be asking the bank for a loan!

Are there any specific ways to approach a lender for a new business loan and get the entire amount financed??

If I had wealthy friends or family who just happened to have cash laying around to "angel invest" with a promise of payback with interest, I would ask them, but unfortunately, I don't know anyone like that!

Suggestions on financing would be appreciated!
Thanks!

 

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[DeletedUser2]

dont go to banks.


1. sba
2. score.
3. lendio
4. prosper.com
5. circleup.com
6. peer to peer lending
7. kickstarter.com
8. local angel groups (there are approx 3600 online)

really understand what you would spend the money on,
find your minimum viable product
make some sales,
boot strap it from there.

hope that helps
Z

 

[mayana]

really understand what you would spend the money on,

I think that this is the most important thing on the list. A little over 10 years ago, I got a loan from a bank to start my business, but I had no plan at all as far as what were the priorities for my budget.

I was a walking bulls-eye for people selling me services that I didn't need (#1 thing to watch out for when starting a business... lol)

Make a plan to see how much money you REALLY need first. Then, if you REALLY need to borrow money, I like the Prosper option. The interests rates are high, but if you only borrow what you actually need and you have a real plan, you have a higher chance of succeeding.

 

[Denise]

We know exactly how much money we will need for equipment and supplies. The problem with most lenders including SBA is that they want you to put up a percentage of the total amount, and well, I wouldn't be asking for a loan if I had that much money laying around! :smug2:

The lady I spoke to said she is talking to her SBA contact about my request, and that the SBA will require me to put a percentage down. She said I could get a home equity line of credit to present my percentage of the total loan needs. That is really the only place I have to pull cash from. I work with doctors but they are very tight with their money. Not to mention, this business is a new sector in a very old industry.... a very lucrative industry, which has recently become easier for the smaller business person to enter.

I would be happy to pay back the one lending me the start up cash, with interest, as soon as money starts flowing in... it is just hard to find someone willing to take a chance on a new business in a bad economy. $100,000 isn't a lot of money to a lot of people but that amount would allow us to get started and have cash flow very quickly.

There are federal and states regulations that need to be met before I can even begin producing, so I can't do any "pre sales" except to describe the product to our target.

 

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[mayana]

It sounds like Propser might not work for a loan of $100,000, unless (you say "we", so can I assume it is a spouse/partner?) both/all of you can try for the maximum loan of $25,000.

However, could you piecemeal it together from different sources?

If you could borrow $50,000 from Prosper, had $10,000-$20,000 that you could scrape together from savings/selling things, maybe some credit cards, and some loans from family/friends for the remainder? Or just bootstrap the rest once you get some sales going?

Can you buy used equipment? Can you lease it? Without knowing the type of business, maybe you could even lease manufacturing space in another facility. Just to get those sales and that cash flow going?

If that scenario won't work, then you could try some of the crowdfunding options that were listed above.

 

[DeletedUser2]

why are you looking at 100K as a startup? you could probably launch with a 1/20th of that.

what is the minimum viable product you need?

 

[Ska2free]

The requirement from banks or the SBA that you put in some of your own cash is there for a reason...so that you have skin in the game. If you stand to lose nothing but borrowed money, the thought is that you won't work as hard to make it work.

If you've run the numbers every way possible and can't get the startup cost any lower (and I agree with the person above that you should look into leasing your equipment to reduce initial costs), and if you are confident that you'll be able to make it generate cash quickly enough to pay it off, then I think using a home equity loan to bring your required percentage to the table makes sense. Not something to go into lightly, but realistically there are few places who will lend you 100% loan to value.

Good luck!

 

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[kurtyordy]

first off, let me say.. hi neighbor! good to see another central PA person here.

second, here is my take on your situation which is going to sound harsh and mean, but I do not mean it as such. As someone who has lent money to biz ventures in the past, someone having absolutely no cash to put in of their own is always a deal breaker for me for one simple reason, money management skills.

Again, I do not mean to be insulting and I am not talking about you directly because I do not know your exact situation, but if someone has been unable to scrape together savings by managing the money they have historically owned, then how can I trust them to manage their future money which I have a part in? I know you are not here asking for money, at least that is my impression, but I want you to see things from the other side of the transaction. Once you can really understand where they are coming from, you can start addressing some concerns they may have.

To start with, what do you bring to the table besides and idea? Do you have any cash at all? A patent for your idea? etc.

kickstarter can be a great option if you can write a compelling story that pulls people in.

 

[InMotion]

I would normally say that the SBA is a joke, but you could try the micro loan program, might be called something else now, but it is an express loan with minimum paperwork; im not sure about the requirements. I believe you can get either 35k or 50k, it has been increased recently. SBA has lost clout with the banks that I have dealt with in the past and most of them wont lend under SBA, the banks tell me they don't make any money SBA loans. The SBA doesn't lend any money you still have to find an institution who will lend the money under an SBA program.

 

[H. Palmer]

Denise, do you have any experience in sales?

 

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[Denise]

Unfortunately, there is no equipment leasing available in this business. But we, (my brother and I), have decided to go with a different company's equipment to shave off some of the cash requirements, and then go with the bigger equipment later on, moving us down to 80k. I totally understand a banks concern over lending money, but that IS their business and they take risks on people everyday (look at the housing market and how many houses they are suck with). We are going through all of our "stuff" and selling off everything we don't need to raise some cash, but in the end, we are still going to need some financing. Someone could put their money in the bank right now and earn a measly 0.8% interest, or invest their money in a great opportunity while earning 5% on their money... we would rather pay back friends and family over the bank anyway, people just have a hard time parting with the "security" that they know. :shruggie:

The banker said her SBA rep will not allow me to use a home equity line of credit to cover my percentage of the loan. He said my percentage cannot be from another loan. And, if I can come up with 30%, they will loan 70% but only with collateral to back up the entire 70%.

My brother is the sales & marketing expert, I am the brains and creative mind. We already have interested buyers and we haven't even begun!

 

[mayana]

If you put together a rock-solid business plan (make one specifically for the purpose of showing to a banker) and then perhaps even get several letters of intent (if you potential customers are other businesses) or statements (videos, affidavits) from potential customers (if your customers are the general public). And then if you threw in some actual, real market research where you got out and talked to a hundred or more people from your target market and you got a real sense of how your business will take off with them, you might be able to talk to a bank about it.

If you are with a large bank, you might be wasting your time. Open up an account with a small, local bank. This is where you will have the best chance of convincing a banker to lend you the money. You might need substantial collateral, too, and will need to have a solid credit background, and so will your brother.

It's really tough to get financing when you are just starting out, but if you can figure out a way to squeeze in to the market (with or without some or all of the $100,000 - I'm still convinced that you if gave us a little more information about your potential business, people might be able to be a little more helpful with creative ideas), you will have no problem getting a loan a few years down the line for expanding your business.

 

[Denise]

dont go to banks.


1. sba
2. score.
3. lendio
4. prosper.com
5. circleup.com
6. peer to peer lending
7. kickstarter.com
8. local angel groups (there are approx 3600 online)

really understand what you would spend the money on,
find your minimum viable product
make some sales,
boot strap it from there.

hope that helps
Z

when you say "peer to peer" lending, are you referring to asking friends and family, or more like other business people?

I am finding that even with a solid business plan and a promise of 5% interest on the loan amount, people are still scared to part with the "security" they know (i.e. the bank).

What is the best way to approach someone, you are asking to invest money? :shruggie:

 

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[PatrickP]

Well I think you need to ask yourself what would YOU want before you would risk your hard earned money?

Really would you give someone who has never had a successful business, who has no formal business education and is not willing to put up 50% of their own money to realize this dream business?

How much are you looking to borrow?

How much of your own money are you willing to risk on the idea that you, yourself came up with?

 

[Denise]

I have thought about it, Patrick. But I am a risk taker unlike many people. I do have a formal business education. My partner and I are previous business owners. Our previous businesses were both successful and are still in operation, but we each sold out. If I had 50% of the money to put up for this, believe me, I would do it! I wish I had 100% and then I wouldn't have to pay anyone else interest money that could go back into the business. I am risking everything I have. Thats how much I know this business will wildly succeed. I am in the process of selling items I have to raise cash and trying to come up with other creative ways. I have one potential investor who my decide to finance the entire 80k..... but I am waiting on an answer. I can't count on it, so I continue to look for other avenues.

 

[Sasha]

I am finding that even with a solid business plan and a promise of 5% interest on the loan amount, people are still scared to part with the "security" they know (i.e. the bank).

I seriously think you need to re-evaluate just how much of a deal what you're offering really is.

I, personally, would want a lot more than 5% interest on a $80-100k loan made to someone with no skin in the game, AND to fund a business with no track record to go on.

Also, someone with that much laying around most surely knows of a few investment vehicles like municipal and/or international government bonds that offer a similar pay out with a lot less risk and a lower required investment.

FFT.

 

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[DeletedUser2]

Go to a local angel group.
have coffee with several of them

go read
Pitch anything

 

[Denise]

I seriously think you need to re-evaluate just how much of a deal what you're offering really is.

I, personally, would want a lot more than 5% interest on a $80-100k loan made to someone with no skin in the game, AND to fund a business with no track record to go on.

Also, someone with that much laying around most surely knows of a few investment vehicles like municipal and/or international government bonds that offer a similar pay out with a lot less risk and a lower required investment.

FFT.

Actually, we already have a lot of "skin in the game" so far. Starting a business requires a lot of cash and time, way before the "main event" money comes into play. Business isn't new to us, but this particular business is very different from most others, and unfortunately it does require a large initial investment JUST to get started, but the payoff will be even bigger.

Since it does require such a large initial investment, I thought I would ask the many knowlegeable and helpful members here on the Fastlane Forum, who may have ideas to share that could help get this thing off the ground. I continually seach and research every avenue I find, but I am also wise enough to ask others for advice on how to climb mountains they have already climbed. :hl: