By Andrew Neitlich

Starting Up — Business Loan

By Andrew Neitlich

Malikyte asked also about breaking in with a business loan.

Good luck! Few banks will loan you any money on a startup professional business.

In the US, your best shot is an SBA loan. However, these are annoying to get, and the bank typically needs to see collateral in the form of a home or other assets. So if you have a home, and want to risk it, you are better off just refinancing to cash out your equity.

But don’t do that.

Instead, save enough financial reserves so you can cover the expenses of your business and your living expenses for 1-2 years. (Or make sure you can live off your spouse’s income, if you are married).

When you have enough financial reserves, two things happen:

1. You don’t come across as desperate to your clients.

2. You feel confident because you have the time you need to get business.

Finally, if you can, don’t make the leap until you have a couple clients lined up. That sounds like a strange Catch 22 to line up clients while working a job, but that’s what many of my colleagues did. They started a business only when they landed some clients (which they managed to do while working full time jobs — and using vacation time wisely). That way, cash flow wasn’t an issue at all.

Next blog….the marketing tactic you need to know to jump start your business fast….

  • Whether you go for the loan or not, I’d like to stress Andrew’s words: “save enough financial reserves so you can cover the expenses of your business and your living expenses for 1-2 years”. I didn’t do that when I started out 3 years ago and the results were worse than I could ever imagine: broken relationships with past business partners and family, plus lots of stress and pain which all wouldn’t happen if I didn’t quit my daily job too early.

    I don’t say doing it this way is impossible. After three years, I have multiple clients who come back often to me but I’m still not stable in money terms. This is my reason for taking a loan right now. Not for the business but for myself–to be stable regarding financial issues and to spend money on my home and myself that I couldn’t afford in the past 3 years.

    Now for the important part. Now I *know*, again, I am *completely* sure that my business idea works. I’ve experienced that clients actually want to pay for my services. I do currently have multiple partners who have lots of work for my business. My personal advice is that don’t put your house on a business that is not a sure success. People say 1 out of 10 businesses succeed. Never risk loosing your home.

    On the other hand, don’t start without money. If I had enough to cover my personal (higher amount) and business (lower amount) expenses, I guess I could have succeeded in 1 years. This way it took 3. But being 22, living without any support from the family, it’s not bad, I would say.

    On whether to take the loan or not–it completely depends on your own situation. If you put your home on it, make sure you have the financial and/or family support behind you to save when you’re in trouble, or you might pay hard for it, just like I did.

    But after all, if you feel you need to start your business, do it. It’s your life, don’t listen to others. You probably know what you are doing.

    Good luck!

  • Ahh business loans.

    The most important thing I have learned is that the government is always very happy to give you taxpayer money (which is also … your money). Research heavily how you can take from the government.

    One good link: http://www.businessloan.org/

  • I’ve gotten loans to start businesses before, and while it helps it’s also a ticking time-bomb. You get a loan and instantly have to start paying it back, with interest. That puts a clock on how fast you have to make your business profitable. You only have so much money and have set expenses, including the loan payment. How many months can it all last? Not many for most businesses…

    We got an SBA loan and a few small loans to start a business 5 years ago. We had to pay deposits on getting utilities and phones turned on, buy equipment, lease the building, pay for Internet, phones, etc. After getting setup there wasn’t much money left for the monthly expenses, much less a salary. We should have had more saved – enough to at least cover the expenses for a year. Then we could have focused on building the business instead of worrying about paying the bills.

    Listen to Andrew, and even if you get a loan you should have some capital saved. It’s just the smart thing to do.

  • I will never take a loan, ever…

    “A bank is a place that will lend you money if you can prove you don’t need it”
    — Bob Hope.

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