When applying for business financing for the first time, we’ll likely need to put our personal assets on the line—not just those of the business. Why?
Because if we don’t believe in our Vision enough to invest our own money, why should the bank?
They want us to have “skin in the game,” which often means using personal collateral. If we already have a mortgage, this could mean the bank taking a secondary position on our home. To prove we’re good for the loan, we’ll typically need to provide personal tax returns from the past couple of years, any prior financials for the business, and a solid business plan—both financial and written. The silver lining?
After we’ve built a track record with the bank over a few years, we can usually remove our personal collateral and let the business stand on its own two financial feet.
Story Time: Take my client, Sarah*, for instance. A few years back, she had her eye on a fixer-upper in her neighborhood. Her plan was to bring it back to life, boost the local curb appeal, and hopefully make a little profit on the side. Thankfully, she already had a personal account with a local banker–and a professional friendship–so she gave him a call, explained her big idea, and listened.
And that’s key: having a relationship with a banker BEFORE we need financing is vital. There’s the technical side, such as the tax returns and past financials; and then there’s the softer side: your personal reputation and rapport.
The banker asked for the property details, the price, and a quick rundown of her finances. After doing some homework, he was on board and offered a loan for 80% of the project—leaving Sarah to cover the other 20% herself.
The catch? She had to use her own money first, keep every receipt, and prove she was investing her own funds before the bank would pitch in. Sarah kept her banker in the loop with regular updates and progress photos (including some of her in DIY mode, paint splatters and all!). When the project was done, she sold the place just as planned, everyone was thrilled, and she earned some solid credibility with the bank. Now, she’s officially on their “trusted client” list for her next big idea.
Want to learn more? Reach out to us–we’re here to help.
*Details modified to respect privacy!
Photo by Fabian Blank on Unsplash
