Financing your boomer business startup – Don’t get a bank loan!
July 29, 2008 by Jean Murray
It turns out getting a bank loan to finance your new business startup is NOT the right way to get that money.
If you are considering starting a new business, either post-”retirement” or just in general, you’re probably going to need money. And you’re probably going to go out and look for a bank loan. But don’t go run out and start talking to banks yet. Listen to an expert - David Gass, Founder and President of Business Credit Services, Inc., about the best way to go about financing a business startup. Here is what he says:
Q: You say people starting a business do the wrong things. What do you mean?
A: The first thing people do when starting a business is to get capital – they take out loans for more money than they actually need, they rely on personal credit, and they look for investors. But these are the wrong steps, and they will doom a business to failure.
Q: What are the right steps?
A: The correct first step is to get the business established as an entity, putting the foundation in place. That includes deciding on the type of business entity (LLC or corporation), making sure all the licenses and basics like phones and Internet are in place. Looking like a real business is an important step for getting creditors and lenders to take your business seriously.
Q: What’s the second step?
A: Then, go out and get trade credit – buy office supplies, computers, basic marketing things. Use that trade credit to set up the physical business. You can also use trade credit to get your initial inventory of products or materials. There are lots of financing options for inventory. Only after you have established your business and set up creditors who can vouch for you should you consider bank financing.
Q: This is an interesting new concept. What do you use the bank financing for?
A: The bank financing should be used for leverage – to generate revenue and grow the business. It should not be used to buy office furniture. Leverage your bank financing to buy things that will generate a return.
Next, David answers the question “If I don’t need bank financing, do I need a business plan?”