It's possible to borrow for a startup

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September 25, 2007

If your business is a startup company or if other credit criteria are not met, you may think there is no program for you. In fact, the lender may consider your proposal but require a loan guaranty. If you cannot provide a guarantor/co-signer, they normally will seek this guaranty via the U.S. Small Business Administration (thus the "SBA loan") or other state-operated program.

So, if your company is a startup business with no track record, can you borrow money? Yes, but. There are other factors that are mandatory, including:

1. Feasible business plan with realistic projections. Although your projected income and expenses are "educated guesses," you need to do your research and be sure that there is more emphasis on the "educated" than on the "guess." Minimally, you need one-year projections on a monthly basis and then two years on an annual basis.
2. Management expertise and commitment to make the business succeed. If you don't have experience in your industry and in management -- chances are slim that any lender can take on that level of risk. Volunteer in a similar business, work for someone, shadow or intern with the treasurer of a local nonprofit board.

3. Capital injection (generally a minimum of 30 percent) by the owner. So many times, people are frustrated feeling that "If I had that kind of money, then I wouldn't be borrowing money." Look at it another way. Using your capital as leverage, you can borrow more capital.
4. Collateral. You need to help the lender mitigate their risk. You need to be able to place an asset at the lender's access to cover their loss should you default on the loan. They must protect their depositor's savings.
5. Owner's personal financial strength. Without business history, the lender must look to your personal financial situation. Have you treated your credit wisely? Have you invested what you have earned in a growth asset?
6. Credit history. If your company lacks credit history, more reliance is placed on the owner's personal history. It is important to understand what type of credit you have. Check the accuracy of the credit report and be prepared to explain discrepancies. There are three main credit agencies: Experian, Equifax and TransUnion. They can be found on the Internet. There is a small fee to receive your credit report. You also can see your credit report for free (without a FICO score) from www.annualcreditreport.com.
7. Bankruptcy. The majority of financial institutions will not consider companies or individuals that have experienced bankruptcy in the past 10 years. Alternative sources of financing need to be explored. It is not impossible to borrow start-up or new business capital. You just need to be diligent and present a clear and compelling case and understand the "rules of the road." Jimmie Wilkins is the director of the Chemeketa Small Business Development Center. The Small-Business Adviser column is produced by the center and appears each Tuesday. Questions can be faxed to (503) 581-6017, e-mailed to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or phoned in to (503) 399-5088.

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