New small businesses that need a loan to get started are in a classic catch-22: lenders will want to see a proven track record before they lend you any money, but you can't establish the track record until you get the loan. As a result, a lot of new owners have to turn to alternate sources of financing, such as selling personal assets, borrowing from friends and relatives, or taking on partners or investors.
If the alternate sources of financing are not available to you, don't give up on getting a loan from a bank or other traditional lending source just because you're told that it's difficult to do. Be persistent.
If you already have a good credit relationship with a bank, you may have built the track record you need without even realizing it. Here are two suggestions for succeeding where others have failed:
1. Develop a first-rate business plan. If your business plan is well thought out and well put together, you've just improved your chances of getting a loan.
2. Go to banks with a good small business lending record.
As part of any effort to raise money for your business, you should develop financial data on your business that you should be prepared to give to a lender. Here's a list of information you should compile:
- A personal expense budget for one year
- A personal financial statement
- Estimated startup costs of your business
- Estimated first-year business expenses
- Estimated total cash requirements
- The amount of money you can invest and the amount of money you need to borrow
- Estimated break-even point
- A business plan