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You should always approach the bank where you have your personal checking or savings account first. If you fail to get a loan there, you can try other banks. Just because you don't have an account there, doesn't mean that you won't get a loan. We know many people who were turned down at their bank, only to be approved at another bank, where they didn't even have an account. Then, several months later, their bank came crawling back wanting to loan them money. DON'T YA LOVE IT?
Find out if the bank you are applying at is a Small Business Administration Lender. This is important, because it means that they support new business and community growth. This is important even if your not looking for a loan from the SBA.
There are two types of loans to consider. Business Loans and Consumer Loans.
Business Loans
Small Business Loans are generally secured with company assets, but personal assets can also be used as security. The bank will usually ask for personal guarantees and collateral from anyone who owns or will own more than 20% of the company.
This type of loan is harder to get than consumer loans and the banks are usually tougher on you after having acquired a business loan. For example, don't let your business get into a bind, and don't make your payment late. If you do this, there is a good possibility of the bank asking, or rather demanding, full payment of the loan immediately.
Consumer Loans
There are several types of Consumer Loans, including, but not limited to:
* First Mortgage Refinance
* Home Equity Lines of Credit
* No-Income Verification Loans
* Second Mortgage and Home Equity Loans
* Uncollateralized Personal Loans
Many small businesses get their financing through personal loans, based on personal assets. Consumer loans are easier to obtain than business loans if you have good credit. Most banks don't have a problem with you using the funds from a personal loan to start a business, because the nothing involving the business is securing the loan. Some banks won't loan you money if they know you are using it to start a business.
It's important that you know that if you tell a banker that you are borrowing the money for personal use, then you turn around and use the money to start a business, it is considered fraud, and it is a felony. It's best to be upfront and honest with your lending institution of choice.
Consumer loans require less paperwork than business loans. They are also approved or rejected faster, which means if you are approved, the sooner you can get started, and if you are rejected, the sooner you can start looking at other financing options.
Before approaching your banker for either a business or consumer loan, have a well thought out business plan ready for him/her to see. You need to show that you have thoroughly thought out your business, and that you have a plan for anything that may go wrong. Think of the questions the banker is liable to ask you, and have your answers ready.
