When you’re ready to take your business plan to the bank to apply for a business loan, be prepared. Many people misunderstand what the bank can and can’t do for you, and why. Before you get to the bank with the plan, consider these ways to prepare yourself — and your business plan.
1. As you develop your plan, set realistic assumptions about financing options. Bankers expect you to know the basics before you walk in their door.
They can’t lend you money just because they believe in your business plan. Laws that protect depositors’ money prohibit banks from risking that money on speculation.
Banks can make loans to borrowers who pledge assets they will lose if they are unable to pay. Many entrepreneurs pledge personal assets to borrow money for their business. I’ve done this myself, by taking out a second and even a third mortgage to get the business through hard times. Understand that if you do this, you risk losing your house, savings, or whatever else you pledge.
If you’re applying for an SBA loan, you’ll need to present an excellent business plan — and 30% of the financing. SBA loans will provide up to 70% of the money you need — if you get approved, that is.
There are at least two other ways to finance your small business: You can lease your equipment or you can use a credit card to buy whatever you need at very high monthly interest rates.
CPA’s Guide to Developing Effective Business Plans
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