Cash. One of the most common misconceptions people have is that they can borrow all the money they need to open a business. Unless your personal net worth is far larger than what you need to borrow, this is almost certainly not true. For SBA loans, you’ll most likely have to come up with funds-either from your own assets or other sources-probably equal to at least 25 to 30 percent of the total investment needed to start the business, before the SBA will consider lending to you. Lenders like to make sure you personally have “skin in the game.”
Credit. Another thing lenders insist on is a strong credit history. This means they want to see a track record of you borrowing money and making your payments on time. Though your home mortgage might be the best example of a large loan you have serviced well, you’ll find you get almost no credit for that type of loan. Everyone realizes most people will take care of their mortgage before their other bills, so what they really want to see is a pattern involving timely payments on other types of loans. While a good credit history doesn’t mean you’ll get a loan, a bad one almost guarantees that you won’t.
Collateral. Most lenders require you to completely secure any loan you want with personal assets sufficient to provide for 100 percent recovery if you default on the loan. It doesn’t matter one bit whether your business is a corporation or any other type of entity, or whether you go through the SBA process-they are going to look to you for collateral.
Character. The final condition you must meet relates to your character or reputation. Frankly, this is like your credit history-having great character won’t ensure you’ll receive a loan, but having a bad reputation will almost guarantee that you won’t. Having strong enough character and a great reputation used to be enough to offset a lack in some of the other Cs, but those days went out the window with the S&L crisis 15 years ago, at least as far as any regulated lender is concerned.
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