net worth

[KBW]

Seeking a business loan, the loan amount requirements are XX cash and XXX net worth. I can meet and exceed slightly the "cash" requirement, but am only about 50% the net worth value.
I've read this site for quite sometime and know some of the people here have good insight and great financial knowledge. How should I proceed or is the net worth requirement a show stopper? Any guidance would be appreciated.
Thank you in advance.

[BWJR]

The two big factors in securing a loan are your current debt service and your ability to re-pay the loan. Which means sufficient cash flow to make a monthly payment. Banks like your debt service aas low as possible somewhere around 30%.

BWJR

[CharlieS]

And collateral. Which is where your net worth comes in.

I have had significant success in getting bank funding. There are several aspects to be aware of.

First, your bank wants to own you. They will want you to personally guarantee all loans and to have you keep your checking accounts there.

Second, be professional in your knowledge and preparation. Most people provide terrible documentation and really have no clue about the business they hope to enter, when they approach the bank for a loan. This is why the banks want a business plan, so that you are forced to go through the knowledge and number crunching process. I wrote my business plan in 8 hours, from scratch, using an outline of a plan to organize it. However, I had already done all of the research, just hadn't put it into a plan form.

Third - Cash flow is king. First and foremost, the bank wants to know that you will have sufficient cash flow to pay off the loan. Particularly with startups, initial cash flow can be very negative, so cash reserves are important.

However,

Fourth, they will still want to cover themselves, which means they want readily convertible assets, with a large equity position. In other words, they want to be sure they can get their money back if they need it.

This is where your net worth comes in. It give them a little more assurance that you can cover a loss.

I don't know what guidelines you are using, but talk to several bankers. Consider an SBA loan. They are easier to get than they used to be, and may work well for you.

Charlie

[Jim]

Originally posted by CharlieS


A) First, your bank wants to own you. They will want you to personally guarantee all loans and to have you keep your checking accounts there.

B) Second, be professional in your knowledge and preparation. Most people provide terrible documentation and really have no clue about the business they hope to enter, when they approach the bank for a loan. This is why the banks want a business plan, so that you are forced to go through the knowledge and number crunching process.
Charlie

I somewhat agree with what you are saying but:

A) I only had to personally guarantee my first loan 20 some years ago and never again after that.
and
B) If you have no experience in the business your trying to get a loan for, you have less of a chance in getting it.

other than that I agree with Charlie...

[Gary C]

you can always look to family to put up a property as part collateral that may help. If you have enough cash keep working on them to go less on the assets. If you can offer a little more cash in lew of net worth that may work.

Gary

[KBW]

Thank you for your quick responces and good information.
Potential new business is a cash business, as in no invoicing.
The business is'nt new as in never tried before, just new for me.
After some surface scratching on loans the choices seem to be conventional bank commercial loan, SBA backed or a local investment group with start up business success's under their belt. Business plan should be solid.

[CharlieS]

Foy my 2 cents, either go it alone or forget it. Silent partners, investment partners, etc, will be nothing but a headache. Especially family.

I will never do another partnership.

Charlie

[Jim]

Originally posted by Gary C
you can always look to family to put up a property as part collateral that may help.

Word to the wise: NEVER, and I mean NEVER use your families property for collateral....There's a can of worms you don't want to open.

[pete f]

I think Gary's reply was that "dry" Maine humuor....

I do agree, go it alone or don't bother, unless you can set realistic goals , buyouts, job descriptions in advance. I had a partner once, we never had any of that, and when time came to buy out it all worked perfectly. Even working together we never argued. We were not friends, just friends of a friend. I got lucky I think.
IF you can borrow money on business terms within your family then that is OK, provided you do it business like, IE, pay it back on time!

[mike]

Don't involve family with business !
(unless your wife will do drop-off for no money)

Money and family don't mix.

[KBW]

Thanks again for your time and input. I can appreciate the humor.
The investment group statement, not looking for partners, silent or other wise just a loan source.
My current business 7 years old has had a tough 13 months, the worm is starting to turn things are looking better every week, it's not a case of when the going gets tough the tough get going, I have gotten going that is why the payments are getting made on time.
But as some of you have experienced in past business, wanting to move on to something new. When I exit current business, I'll have no debt, outside of a house payment and insurance.
The problem I am trying to get an answer for before it become questionable on paper is net worth, and how much of a sticking point that maybe.

[JBTcajun]

KBW
In my experience cash flow is KING!

Lenders want to see the ability to repay. (preferably without any income coming from the new investment.)

I don't know where you got this formula, but I assure you the demonstrated ability to repay is much more important than net worth.

Learn you're project. Put you're package together. Shop it around. Don't give up with each presentation you will get a better feel as to what they are looking for. Eventually you will find the right combination and someone will fund you.

Remember the line if it were easy everyone would do it.

Always keep a copy of everything you give someone. Keep a log of every encounter. Periodically review and keep up with everything in the works.

It will come together.

Remember that these struggles and the struggles keeping it afloat is what the game is about. When you are exiting the game all will be remembered and learned from. This is working for yourself. Some do not like the stress, uncertainty, and passion so they work for someone else.

I say do it and let the good times roll.