Most lenders define a “start-up” business as being in business for less than 24 months. Some lenders define as less than 36 months. A “true” start-up is defined as not yet having created any revenue. Many lenders will not loan to a start-up business as quite frankly the success rates are not impressive. 80% of small businesses fail in the first 24 months and 80% of those remaining fail in the next 5 years. Quite a sobering statistic. Most often the reason for failure is not lack of work opportunity, but poorly managing business affairs and not keeping business expenses down.

I have worked with numerous start-up companies over the years and it is important to me to discuss where they want to be in 2 years, 5 years and beyond. I help them evaluate the equipment and the cost of financing now versus how I can help them continue to demand more competitive rates as their commercial track record progresses. Below are some questions I ask to determine to a lender that offers the best possible terms for their situation.

“I know that you started your LLC six months ago but were you a DBA before that? When did you open up your first biz bank account? When was your first revenue created and can you show that invoice?”

These are just a few questions I would ask to try to make the business as ‘old’ as possible. I have been able to obtain more competitive rates for numerous borrowers by fully understanding their history and business background.

“Are you open to a different piece of equipment that is priced differently?”

I ask this question because some new business owners have unreasonable expectations as they want to spend $50,000, $75,000 or more on their first piece. Lenders simply do not want to loan those amounts for a brand new business. On the flip side, I also ask if they might spend more if they were looking at a $15,000 piece as some lenders that might have better terms have a $20,000 minimum. In other cases I may ask if they are willing to spend less as the lender that I know has the best rates in the country for start-up ventures caps their loans at $35,000. There are numerous equations and my job is to help the new borrower with my experience and expertise.

“Can we go through your credit report item by item to determine the accuracy and what we can do to explain it to a potential lender?”

Most lenders will say they are ‘story’ lenders but in actuality most of them are not. The more information I have on a new borrower the better chance I can better their terms. For those that normally would not be able to obtain financing I can now convince a lender they deserve a chance.

I encourage and look forward to consulting all business owners who have questions regarding equipment financing; not just start-up owners. This month’s newsletter is specific to start-ups because new entrepreneurs have so many questions due to the many details and dynamics involved in a new business.

Part of being confident that Joslen Commercial Funding (JCF) is able to provide educational consulting is continuing to interview new lenders that decide to enter the equipment segment that most of my clientele deals with. JCF has recently partnered with 4 new lenders that can provide some more competitive terms for not just start-up businesses but established ones as well.

To a successful month,

Tim