Incorporating a Business and Getting Capital?
Posted by admin on 7 Feb 2009 11:37 am. Filed under Corporations.
Alby
If I file Articles of Incorporation and thus Incorporate a business, what does a bank/lender look at when issuing lines of credit to an Incorporated Business? Does the business need to show assets to secure a loan? Or does the very nature of being Incorporated justify at least a minimum amount a lender is willing to risk on a business?
This is of course given that you have a business plan and will actually put the money to use in making the business successful. But I’m talking about starting out on Day 1 with $0.00 and Zero Assets for the business?
If I file Articles of Incorporation and thus Incorporate a business, what does a bank/lender look at when issuing lines of credit to an Incorporated Business? Does the business need to show assets to secure a loan? Or does the very nature of being Incorporated justify at least a minimum amount a lender is willing to risk on a business?
This is of course given that you have a business plan and will actually put the money to use in making the business successful. But I’m talking about starting out on Day 1 with $0.00 and Zero Assets for the business?
Or is the only option for a newly former Incorporation to seek Venture Capital and hand over partial ownership to those Venture Vultures?
2 Comments to “Incorporating a Business and Getting Capital?”
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On February 9th, 2009 at 4:43 pm
Just being incorporated means absolutely nothing.
Banks, in general, will not lend a significant amount of money to a start-up unless they have either (a) a security interest in assets having a value *higher* than the outstanding amount of the loan or (b) a personal guarantee by an owner (or possibly someone else), who has sufficient personal wealth to qualify for the loan on his own. Indeed, if you don’t have a bunch of positives (like a a lot of equity money from known investors, a track record with similar ventures, etc.), they’ll likely demand a personal guarantee in any event.
You need to have equity investors. Assuming you reallyreally believe the business will succeed, in order of preference: yourself (if, of course, you have the money), family and friends, professional venture capitalist/angel investors with a good reputation, professional investors with a shaky reputation, the mob.
If:
- You could finance a start-up business with cheap loans and keep all the highly-leveraged equity for yourself, why would anyone sell equity?
- A bank were willing to make an investment that has the same risk as equity, why would they only want a 6 or 7% return?
On February 11th, 2009 at 7:48 am
Different businesses have better opportunities to secure venture capital funds-depending on the type of business you are, the goods and services offered and opportunities in your area. Banks defiantly need a solid business plan as well as your background, marketing opportunities, business strategies, etc.
You might want to go to a local community development loan fund, they will lend to you while offering other services. Go to your local Small Business Development Center and see if there are any specialized resources at your local Chamber of Commerce.
Good Luck!