Board Topic: Startup Business Financing
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Startup Business Financing

Posted by: Lydia Nov 8 2003, 12:48 PM
I have completed a comprehensive business plan and I am now in the process of securing financing and funding for a startup business.

I have good credit, own a home with some equity and have an IRA. I would like to secure financing without the help of family, friends, equity options or partnerships.

Will traditional lending sources work with individuals to refinance current mortage, tap equity, use IRA as collateral and possibly pledge assets from family in order to meet 20-25% initial owner invest for SBA funding?

If so, what are the best lenders to focus on? What other options might I consider? How can I best prepare myself before meeting with lender?

I have good business background and excellent business plan with strong cash flow and projected profits early in year 2.

Posted by: loanuniverse Nov 8 2003, 06:45 PM
Lydia:

I do not want to discourage you and this is something that you need to discuss with the small business lender specialist. After all the last thing I am is a startup financing expert or an SBA lender. However, I would like to give you some feedback on the questions/statements that you have/made, and happen to be on topics that I know something about.

have good credit This is great since a small business loan will be highly dependent on your credit.

Will traditional lending sources work with individuals to refinance current mortage, tap equity, use IRA as collateral and possibly pledge assets from family in order to meet 20-25% initial owner invest for SBA funding? While similar the act of pledging an asset to obtain financing is not the same as an equity contribution. The famous debt to worth ratio is extracted from within the balance sheet. For example, suppose that you own a building where the business will be located. If you put it under the business name and is shown as an asset, then it is treated as a capital contribution. If you keep it titled under your name and pledge to get a loan it won’t affect the debt to worth. Another thing that is not possible to do is perfect a lien on an IRA account so that is pretty much out of the question.

I would like to secure financing without the help of family, friends, equity options or partnerships. You are closing some doors here.

If so, what are the best lenders to focus on? What other options might I consider? How can I best prepare myself before meeting with lender?Start with your local bank, if possible start with the lenders, which bill themselves as SBA lenders. While it is good to prepare yourself for the initial meeting, the meeting with the lender will probably open your eyes as to the possibility of the financing. Also do not be discouraged after a negative first meeting. Meet with at least two lenders and go over their feedback, which will be tailored to your situation.

I have good business background and excellent business plan with strong cash flow and projected profits early in year 2. I am not trying to be negative, but the business experience has to be specific to the type of business that you are starting in order to work. Using myself as an example, I have over seven years of professional experience and almost twenty years in the workforce, but this would not be a strength if I wanted to open a bookstore. The cash flow part of that statement is good as long as the assumptions are reasonable.

Hope this helps.
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