This post originally appeared on the Louisiana Technology Park blog.
very entrepreneur will face a point in building her business where she will think about taking out a loan or some other type of credit.
Start-ups often rely on personal savings or personal borrowing from friends and relatives to get off the ground. After you’ve burned through that seed money, the next step often involves a commercial loan of some sort.
Louis Greenblatt, President of Evergreen Working Capital of Baton Rouge, La., says it’s important to think not just about how much money you need, but where it will come from. He has more than three decades of experience in commercial finance, including 12 years as a banker and more than 20 years running factoring companies, which provide clients with upfront cash so they don’t have to wait to collect on their invoices.
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The first thing people growing a business need to understand is that banks aren’t usually the best option for young companies in need of capital, Greenblatt says. And banks are reluctant to provide commercial loans without a proven track record of revenues and profits.
“People think banks are there to lend money to all businesses, but their mission is to make safe loans. That’s their model, they must have a high degree of confidence they’re going to get it back,” Greenblatt says.
If you’re at the startup or growing stage and want to get a bank loan, you’ll almost certainly be required to put up personal assets as collateral. That obviously holds all types of risks, since the fate of the business is now tied to things like the home your family lives in or your retirement assets.