Question for Kim:”I need start up cash. How can I get money in this environment to get my business off the ground? Thanks.”
My answer is you may want to consider approaching the L.A. Lakers. The players just won the whole deal and they will be flush with commercial offers, endorsement money and barring any addiction problems should have plenty of cash to investment in businesses. Maybe—yours.
Naw, I am kidding. They probably won’t and they have layers of managers who generally prevent people from pitching them ideas day and night or if they were smart, they should have people like that filtering deals for them. So how do you go about getting money to start your business?
If you are planning on starting a business, or running one already, you know that you may need extra money to start up or expand. That is where having credit comes in. Credit is basically where a bank, a credit card company or some lending institution (or person) gives you money with the promise that you will pay it back with a fixed interest rate.
The factors that creditors look for are similar and they boil down to the following (thanks to the Federal Government and the Consumer Handbook for Credit Protection Laws for the source of this information):
“What Creditors Look For
The Three Cs. Creditors look for an ability to repay debt and a willingness to do so–and sometimes for a little extra security to protect their loans. They speak of the three Cs of credit: capacity, character, and collateral.
Capacity. Can you repay the debt? Creditors ask for employment information: your occupation, how long you’ve worked, and how much you earn. They also want to know your expenses: how many dependents you have, whether you pay alimony or child support, and the amount of your other obligations. Figure to have three to five years of tax returns and supporting documentation if you already are running a small business in any capacity. You will want to be able to provide bank statements as well if you are shopping between lenders for your financing for your gig.
Character. Will you repay the debt? Creditors will look at your credit history (see section on Credit Histories and Records): how much you owe, how often you borrow, whether you pay bills on time, and whether you live within your means. They also look for signs of stability: how long you’ve lived at your present address, whether you own or rent your home, and the length of your present employment. If you have moved around a lot that may not be a red flag in of itself depending the reasons – say, if you were stationed in the military and had to uproot every couple of years because of marching or station orders.
Collateral. Is the creditor fully protected if you fail to repay? Creditors want to know what you may have that could be used to back up or secure your loan and other resources you have for repaying debt other than income, such as savings, investments, or property. If you own a home, you better be the right side of the mortgage. If you are upside down and are fighting to make your monthly payments, you may want to seek private funding but be aware that if it is out there that people will want the sun, moon and stars from you and expect you to give up ownership in your business and future profits (or large chunks of it) in exchange for their seed capital. Fair is fair and if you are anticipating your venture to take off like crazy (good luck with that though stranger things have happened) that may be something you can live with and sleep with at night.
Creditors use different combinations of these facts to reach their decisions. Some set unusually high standards; others simply do not make certain kinds of loans. Creditors also use different rating systems. Some rely strictly on their own instinct and experience. Others use a “credit-scoring” or statistical system to predict whether you’re a good credit risk. They assign a certain number of points to each of the various characteristics that have proved to be reliable signs that a borrower will repay. Then they rate you on this scale.
Different creditors may reach different conclusions based on the same set of facts. One may find you an acceptable risk, whereas another may deny you a loan.”
Basically, you need to have your financial act together when you are applying for credit. Now more than ever because of the economy and it is kind of silly because a lot of banks have more cash now than they know what to do with and they are still sitting on it. The consumer handbook offers information and the protections that are out there but you need to show that you can be trusted with other people’s money.
The weird thing is that the more you can be trusted and the more that you don’t need the money, the more that the financial institutions will try to loan you – or at least that was the case prior to the meltdown in the housing markets. Judging from the offers that I see some people who have money are getting, their is credit available out there and you can get it, you just have to present yourself in a very positive light and it doesn’t hurt to show that you have the ability to repay it.
It is also a good idea to watch how much credit you need and read very carefully what the terms are of the lines of credit, the loans, etc. You need to know what would happen if they call the loan due immediately. You need to know when and where to go into your credit.
If you are starting a business, make sure that you have this in your business plan. If you are already in business, make sure that you research carefully what you will need to have.
June 17 2009 Mid Day
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Kim Isaac Greenblatt
Ask the L.A. Lakers For A Business Loan