Your success in securing financing for your new business will depend in large measure on your ability to develop a well-researched business plan and your willingness to commit a sizable amount of your own money toward the business. You will probably be expected to finance 20 to 25% of the business with personal funds. Many businesses, over 50% by some surveys, indicate that the owner, with perhaps family and friends, provides all of the start-up capital. This may sound amazing, but the majority of businesses start for less than $10,000.
Normally, lenders prefer to finance an existing business because it has a track record that helps lenders more thoroughly evaluate the business and the skill of its management team. Business start-ups are considered risky because future revenue projections are not as reliable. In addition, owners of start-ups often lack the capital, collateral, and experience needed to satisfy the demands of a commercial lender.
Sometimes, commercial lenders are able to assume greater risk in making the loan by partnering with a secondary lender who agrees to guarantee a portion of the loan should the business fail. Of course, should your business fail, you will be responsible for paying the secondary lender. Don’t be afraid to discuss your business plan with various lenders. If you get turned down, ask the lender why. You may need to revise your business plan or address issues that surfaced during the loan officer's review of your loan application. For further information on financing your business, see this fact sheet: Capital Sources for Your Business.
