Small Business Lending Countdown Number Three

Screen Shot 2013-10-28 at 9.41.56 AMThis week, we’re going to talk about Capacity. The questions most lenders ask when trying to determine capacity centers around revenue. This is what makes it so challenging for start-ups and idea-stage companies to get a loan.

Regardless of whether you have an excellent personal credit score lenders want to see that you will be able to repay the loan. Even if you have excellent credit, but have no business income, it might not be a good idea to roll the dice by assuming debt. Having been through the start-up process a couple of times myself, and leveraging my personal credit, I know how important it is to have a means in place to meet that monthly obligation. This is particularly true for idea-stage companies with no viable product. No product + no revenue = an inability to repay the loan—severely limiting your options.

I’ve spoken with a number of entrepreneurs over the years who complain that bootstrapping takes too much time and working a second job while getting their small business off the ground takes a toll too. Having done both, I concur. There are options for finding start-up capital for companies without any revenue, but there aren’t very many:

Of course, you can access your home equity or personal credit cards, but that that doesn’t mean it’s a good idea. Unless you know you can make the payments, I wouldn’t suggest you put your home at risk. And, if you can’t make the credit card payments, you put  your personal credit score at risk which could hurt your chances of accessing credit down the road when you’ll really need it. In a nutshell, just because you can don’t mean you should.

The third ‘C’ is an important one you can’t afford to ignore, but many budding small business owners have so much hope flowing through their veins, they forget this one. Don’t forget the story of the tortoise and the hare, slow and steady wins the race. I know there are cases where someone rolled the dice and won, but those stories are the exception rather than the rule.

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About the author

Tyler Heaps
Tyler is a member of the Lendio marketing team. He is passionate about digital marketing, small business, and helping small business owners succeed. Tyler is an outdoorsman and loves spending time with his family.


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