The fact from Part 10a: Getting financing from a bank involves lots of paperwork, so be prepared.
The last post provided some history about my going to a bank when I had another company back in the late 1980s...
I couldn't get a loan even though we had an excellent credit history. The problem was that I had asked for the money I knew I needed, not the money the bank decided I needed. Confusing?
I knew how much I was making from consulting and writing. Some quick calculations showed how much I would need to expand operations, so that was what I asked for.
The bank, however, decided that I needed about US$1.5M (million), roughly twelve times what I calculated I needed. Why the difference? Because if the bank gave me a loan for US$120k it would have come out of their funds, US$1.5M would have come from SBA funding and the bank would only have to contribute 20% of the loan.
I'm only giving the high points, of course, but as I told the loan officer, "You do realize that at 20%, the bank still has to cover US$300k, don't you? I mean, if I default on the loan the bank will be out more money than if you folks just give me the loan for US$120k, correct?"
(more to follow...)
» Thoughts on Building a Business, part 10c from BizMediaScience
Adventures in Small Business Management across the 8th Dimension, Part 10c [Read More]
Tracked on: January 5, 2007 10:35 AM | Permalink to Trackback