There is a way of getting a bank loan as a startup venture. It’s rather simple, but not well known amongst new entrepreneurs.
If you have read Robert Kiyosaki’s books about team building, then you will have read about the importance of insurance.
In this case, the insurance is for the bank. The bank is seldom interested in lending money to startup ventures for one simple reason: The risk is too high.
But if you are smart you will first go to your insurance broker and show him your business plan. If you are ultra smart you will at this meeting show the insurance broker some signed customer agreements as well.
Why go to the insurance broker? Easy: Because he will secure the bank loan so the banker will say yes to you.
Why showing signed customer agreements to the insurance broker? Easy: Because he want to know what kind of risk he is taking. If he can see that you actually have a demand for your product/service then it seems like you have done your homework. The insurance company is not so keen on insuring maverick concepts (understandibly so). There need to be a real commercial demand, otherwise it is just a waste of everyones time.
So, an example of this:
Say you have company X selling a new toy. You already have manufacturers in place. You also have 10 distribution agreements in place. You also have Board of Directors on standby.
In order to bring this company from scratch to commerce you will need $1 million. Obviously you have none of that money, or very little of it. So you need a bank loan.
The problem is:
1) You can’t show a track record of commerce as of yet.
2) Your own credit rating stinks.
3) You have never done business before. This is your first venture ever.
4) You have little to show in terms of a down-payment.
The bank is obviously a little bit concerned about your potential.
So, you go to this middle sized insurance company. You present your business plan to them and also present the pre-signed distribution agreements. The insurance company think you have shown them proof that there is a demand and that you will have cashflow immediately when all the infrastructure, team etc is setup. They agree to insure the banks loan of $1 Million in exchange for a 1-2% premium (based on the total amount, payable every year).
You now go to the bank and present the same business plan to them, including the distribution agreements and the insurance companies written support. The bank has nothing to lose if you default. The insurance company will cover their stake. They agree to fund your venture and you are set to go.
This is a simplified example, but this example is written just so that you understand the thought process. Sometimes it will work out fine. Sometimes you need to shop around a little.
The key question is: How do I cover everyones butts here? That question will get you the money.
