Evan Vitale

Accounting Professional

Evan Vitale – Family Cash For Your Business

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By Evan Vitale

Over the past few months, this blog has looked at many funding opportunities for startup businesses, including venture capital, equity financing, bank and Small Business Administration loans and crowdfunding.

However, based on your current credit and cash situation needs, you may not be a candidate for VC money or an ideal customer for a traditional loan for a bank. If you are low on self-funding options, you might give some consideration to seeking a loan or an investment from one or more friends or family members.

Family members know you and your personal character (that can be good and bad). They can consider some options that banks won’t consider. However, approaching a family member or a good friend for a loan adds an extra level of “pressure” to all parties involved.

You, for example, might find it difficult to call your parents; siblings or an aunt or uncle and ask for a loan. On the other hand, they are going to have to make a difficult decision whether they answer “yes” or “no” to your request. 

It can be extremely uncomfortable. If they say “no” will it cause harm to your family relationship? If they say “yes” and there is a repayment problem, then there are other concerns to consider. 

However, if you approach a friend or a family member – just like you would a bank or a private investor – everyone will appreciate your business-like approach to the matter. Here, you should share your business plan, how much financing you are seeking, what interest rate you are willing to pay and a full payback plan (including a monthly payment plan).

Taking the professional approach to a loan from a friend or family member allows them to ask questions and feel more comfortable about loaning you the money you need for your startup. In either case, never take advantage of a family member or friend. Always remain professional, upfront and honest with them about your plan and how you are going to repay the loan.

If you are asking for a large sum of money, perhaps you can ask for smaller loans from multiple family members or friends. If trust and payback plans are a concern, you might start out with a small loan request to show you’re capable of paying back loans to family members.

Evan Vitale – Why Banks Reject Your Loan Request

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By Evan Vitale

Securing a bank loan for your business can be a difficult chore and, unfortunately, it’s like you almost know you’re going to get rejected the minute you walk in the door.

Don’t feel bad. Most small businesses can’t get a traditional loan from a traditional lending institution.

However, the answer to your bank loan request is always going to be “no” until you ask.

If rejection comes, dust yourself off and ask the bank for feedback on why your loan application was rejected. Usually, they will be forthcoming on the reason(s) for rejection and you can use this information to improve your chances the next time you approach your bank.

However, there are many reasons why your loan request was rejected. Here are some of them:

  • For a start-up business, the business idea wasn’t credible and too risky for the lender.
  • For an established business, applying for business expansion sometimes raises concerns that you will not be able to handle the extra strain on your business debts (even if you are turning a profit). This usually means you didn’t do a good job of presenting a plan on how you were going to be able to afford to pay back the loan.
  • Not enough collateral if things go bad.
  • Lack of personal commitment by you. In other words, how much of your own money have you invested into your business. Sweat equity doesn’t work.
  • Lack of a credible business plan and financial projections.
  • Not understanding a “good” loan purpose. The purpose of the loan request should be very specific and not general.
  • Not being able to talk the talk. You should be confident in asking for the loan and in your ability to pay it back. If you’re unsure, then the bank is going to be unsure as well.

Get your ducks in a row before you present your loan request to the bank. And, as always, you’ll be able to gain great advice by talking to your accountant, lawyer and, yes, even with your banker before you apply for a business loan.