Forum Thread

business loan for a new corporation?? edit: LLC instead of corporation

37,696 4,037 January 25, 2018 at 07:25 PM
Deal
Score
0
773 Views

Thread Details

Last Edited by SDRebel January 26, 2018 at 04:29 PM
0 Deal Score
773 Views
hi everyone, quick Q, we can follow up from that.
i'm about to open a single member corporation and would like to obtain a loan for it. what do they look at for loans when it's a new corporation, is it the credit history of the owner or how do they handle that?
any banks that are particularly helpful for new businesses? I would be able to provide proof with a purchase order and would need financing for some of that...what do you think?
Thanks
(in case it's relevant, this is for services/consulting/solutions)

13 Comments

1

Sign up for a Slickdeals account to remove this ad.

This comment has been rated as unhelpful by Slickdeals users
Joined Oct 2010
L9: Master
4,482 Posts
1,041 Reputation
#2
Quote from SDRebel
:
hi everyone, quick Q, we can follow up from that.
i'm about to open a single member corporation and would like to obtain a loan for it. what do they look at for loans when it's a new corporation, is it the credit history of the owner or how do they handle that?
any banks that are particularly helpful for new businesses? I would be able to provide proof with a purchase order and would need financing for some of that...what do you think?
Thanks
(in case it's relevant, this is for services/consulting/solutions)


As the saying goes, banks love to loan money to people who do not really need it. A lot will depend on the type of business, business plan\projected earnings and whether you will be buying an asset (such as a rental property) that the bank will accept as collateral or whether it is just for stuff like business ops\rent, inventory, etc.

Either way they will almost assuredly want you to secure all of it either personally or against company assets unless you can jump through all the hoops and qualify to get some sort of small business loan from the SBA, credit union, local bank, etc. As such, yes your credit history and financials will factor in. If you do not have good credit and have no assets to use as collateral, your chances of getting a loan to start a business are near zero.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Apr 2006
World dominator and rebel
37,696 Posts
4,037 Reputation
Original Poster
#3
Quote from YanksIn2009
:
As the saying goes, banks love to loan money to people who do not really need it. A lot will depend on the type of business, business plan\projected earnings and whether you will be buying an asset (such as a rental property) that the bank will accept as collateral or whether it is just for stuff like business ops\rent, inventory, etc.

Either way they will almost assuredly want you to secure all of it either personally or against company assets unless you can jump through all the hoops and qualify to get some sort of small business loan from the SBA, credit union, local bank, etc. As such, yes your credit history and financials will factor in. If you do not have good credit and have no assets to use as collateral, your chances of getting a loan to start a business are near zero.
thanks, I meant to clarify that it's about a LLC. do they look at the history of the owners or purely at the LLC history given the limited liability.
Reply Helpful Comment? 0 0
As Tony Schwartz, who co-wrote The Art of the Deal with Trump, said in 2016, "Something I saw early on [with] Trump: most negative things he says about others are actually describing him. Read his tweets with that in mind."
This comment has been rated as unhelpful by Slickdeals users
Joined Dec 2007
L5: Journeyman
768 Posts
128 Reputation
#4
I did not see the clarification that you were forming an LLC. Disregard what follows since it applies to Corporations. Leaving here just in case it benefits others. If not mods may delete.

For corporate entities, another option is a retirement rollover from an IRA or 401k. I did this for partial investment in our company. While it can be organized through a qualified CPA who understands the IRS guidelines, we found it best to use a firm recognized by the IRS. The company we used is Benetrends and the program is called ROBS. There are certain steps that have to be followed so it is not characterized as an early withdrawal and Benetrends manages the process to that extent. They also help with other related corporate requirements for small business owners. Initially, I did not like this approach but after exploring SBA loans, bank loans and Angel investors, this made sense on many levels. Essentially, you use retirement money to invest in the stock of your new company. Just like all stock, the stock value is based on the value of the company. Initially it is equal to the investment. In the future, the corporation can buy back the shares and the proceeds go back the the retirement account based on a formal valuation. Essentially, you (your retirement money) are investing in your company stock instead of that of Apple or GE. Even though the stock market has had a great run over the last year, this decision was a good one. You will have to weigh the pros and cons. Just make sure if you ask for opinions on this, you talk to someone who actually knows what this is. I have a background in finance and accounting so it was somewhat easier to understand and weigh the pros and cons when I explored this option.
Reply Helpful Comment? 0 0
Last edited by Diplomat January 26, 2018 at 05:55 AM.
This comment has been rated as unhelpful by Slickdeals users
Joined Jun 2008
L5: Journeyman
605 Posts
172 Reputation
#5
Quote from SDRebel
:
hi everyone, quick Q, we can follow up from that.
i'm about to open a single member corporation and would like to obtain a loan for it. what do they look at for loans when it's a new corporation, is it the credit history of the owner or how do they handle that?
any banks that are particularly helpful for new businesses? I would be able to provide proof with a purchase order and would need financing for some of that...what do you think?
Thanks
(in case it's relevant, this is for services/consulting/solutions)L
Honestly, the bottom line is that for anything larger than a credit card, your new business loan will be secured against YOU as the LLC owner, or against tangible property you can sign over as collateral. Nobody's going to give you a bunch of cash in the LLC's name only based on a business plan or the promise of future cashflow.

Home equity is a common, inexpensive source people tap when they need capital to start a small business. Is that an option?

I'd also ask what you need the loan for (though you may not wish to share). I've seen lots of people start consulting-type businesses and spend way too much in the first month on things like office space, signage, computers, furniture, and other expenses that they can't really afford. The best option could, depending on your field, be simply to work from home and reduce your expenses to the bare bones until you have some cash flow. A lot of great businesses have been started in a garage. If the loan is to replace your salary when you leave your day job then you may -- honestly -- not be in a good position to start your own company yet.
Reply Helpful Comment? 0 0
Last edited by dukeblue219 January 26, 2018 at 06:13 AM.
This comment has been rated as unhelpful by Slickdeals users
Joined Apr 2006
World dominator and rebel
37,696 Posts
4,037 Reputation
Original Poster
#6
Quote from Diplomat
:
I did not see the clarification that you were forming an LLC. Disregard what follows since it applies to Corporations. Leaving here just in case it benefits others. If not mods may delete.
.
Yes my bad, i meant to write it but ended up forgetting, but it's still useful

Quote from Diplomat
:

For corporate entities, another option is a retirement rollover from an IRA or 401k. I did this for partial investment in our company. While it can be organized through a qualified CPA who understands the IRS guidelines, we found it best to use a firm recognized by the IRS. The company we used is Benetrends and the program is called ROBS. There are certain steps that have to be followed so it is not characterized as an early withdrawal and Benetrends manages the process to that extent. They also help with other related corporate requirements for small business owners. Initially, I did not like this approach but after exploring SBA loans, bank loans and Angel investors, this made sense on many levels. Essentially, you use retirement money to invest in the stock of your new company. Just like all stock, the stock value is based on the value of the company. Initially it is equal to the investment. In the future, the corporation can buy back the shares and the proceeds go back the the retirement account based on a formal valuation. Essentially, you (your retirement money) are investing in your company stock instead of that of Apple or GE. Even though the stock market has had a great run over the last year, this decision was a good one. You will have to weigh the pros and cons. Just make sure if you ask for opinions on this, you talk to someone who actually knows what this is. I have a background in finance and accounting so it was somewhat easier to understand and weigh the pros and cons when I explored this option.
ok, I guess that's a valid option, though in this case it wouldn't be enough for my needs, but I will keep it in mind
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Apr 2006
World dominator and rebel
37,696 Posts
4,037 Reputation
Original Poster
#7
Quote from dukeblue219
:
Honestly, the bottom line is that for anything larger than a credit card, your new business loan will be secured against YOU as the LLC owner, or against tangible property you can sign over as collateral. Nobody's going to give you a bunch of cash in the LLC's name only based on a business plan or the promise of future cashflow.

Home equity is a common, inexpensive source people tap when they need capital to start a small business. Is that an option?

I'd also ask what you need the loan for (though you may not wish to share). I've seen lots of people start consulting-type businesses and spend way too much in the first month on things like office space, signage, computers, furniture, and other expenses that they can't really afford. The best option could, depending on your field, be simply to work from home and reduce your expenses to the bare bones until you have some cash flow. A lot of great businesses have been started in a garage. If the loan is to replace your salary when you leave your day job then you may -- honestly -- not be in a good position to start your own company yet.
Thanks. Part of the question is, how is it secured against the owner (single member of LLC) if the LLC would theoretically shield the owner from liability?

Let me give you one simple example of what I plan on doing (made up numbers with smaller, round numbres).
i.e. let's consider
I have a (tentative ) purchase order for service/solution for $20k
of which $10k is for equipment (say HP servers for example)
$5k for other equipment
$5k is for the services/support, etc

how easy/hard would it be to get such loan with the purchase order in hand?

and what if it's 100k instead of 10k? (assuming 10k is easy to get through any bank)
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Oct 2010
L9: Master
4,482 Posts
1,041 Reputation
#8
Quote from SDRebel
:
Thanks. Part of the question is, how is it secured against the owner (single member of LLC) if the LLC would theoretically shield the owner from liability?

Let me give you one simple example of what I plan on doing (made up numbers with smaller, round numbres).
i.e. let's consider
I have a (tentative ) purchase order for service/solution for $20k
of which $10k is for equipment (say HP servers for example)
$5k for other equipment
$5k is for the services/support, etc

how easy/hard would it be to get such loan with the purchase order in hand?

and what if it's 100k instead of 10k? (assuming 10k is easy to get through any bank)

Liability protection has nothing to do with getting a loan from a bank\how it is secured. The corp does protect you from liability (i.e., from being sued personally either by individuals or creditors). However, a bank is concerned with getting its money back if the business goes belly up. So they will want collateral. In the case of a consulting services company, they likely will want you personally to secure\collateralize the business loan.

That is, if you fail to make payments, they will go after the personal assets used as collateral (house, stocks for example if that is what is used) to get their money back. That has nothing to do with liability protection wrt the corp, but with the bank seeking financial protection wrt their loan. If you want a comparative example, it is as if you are co-signing a child's loan. If they fail to pay, they come after you. Here, if the corp does not pay, they come after your collateral assets.

In your example of computer equipment, good luck. Banks generally hate using a quickly depreciating asset like computer parts as collateral. You can certainly try and hope they are willing to accept some of that as collateral, but I tend to think you will have a hard time getting them to accept that. They generally do not want to be bothered with what the re-sale value is, how much of that inventory would be available and when, etc. esp, for a fledgling business with no track record or positive cash flow and they are not going to want to get in line with other creditors should the company declare bankruptcy.

My 2 cents.
Reply Helpful Comment? 0 0
Last edited by YanksIn2009 January 26, 2018 at 08:01 AM.

Sign up for a Slickdeals account to remove this ad.

This comment has been rated as unhelpful by Slickdeals users
Joined Jun 2008
L5: Journeyman
605 Posts
172 Reputation
#9
Quote from YanksIn2009
:
In your example of computer equipment, good luck. Banks generally hate using a quickly depreciating asset like computer parts as collateral. You can certainly try and hope they are willing to accept some of that as collateral, but I tend to think you will have a hard time getting them to accept that. They generally do not want to be bothered with what the re-sale value is, how much of that inventory would be available and when, etc. esp, for a fledgling business with no track record or positive cash flow and they are not going to want to get in line with other creditors should the company declare bankruptcy.
I think the computer equipment is part of the product that would be delivered to a paying customer. Essentially the LLC has a firm order for $20,000 worth of "solution" and needs a $15,000 loan to buy raw materials (computers) to complete the sale and get paid. That *might* be a little more likely to get done since the order is in hand, but I think it would still need to be tied to the owner's own collateral or at least his signature.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Oct 2010
L9: Master
4,482 Posts
1,041 Reputation
#10
Quote from dukeblue219
:
I think the computer equipment is part of the product that would be delivered to a paying customer. Essentially the LLC has a firm order for $20,000 worth of "solution" and needs a $15,000 loan to buy raw materials (computers) to complete the sale and get paid. That *might* be a little more likely to get done since the order is in hand, but I think it would still need to be tied to the owner's own collateral or at least his signature.

Maybe. A bank could look at it that way, but with no track record of success, no other income stream and I would bet payment deferred\done in stages, I would think it would be a hard sell, esp. since if those services are not satisfactory, the client may decide to withhold some or all of the payment until it is rectified.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Apr 2006
World dominator and rebel
37,696 Posts
4,037 Reputation
Original Poster
#11
Quote from dukeblue219
:
I think the computer equipment is part of the product that would be delivered to a paying customer. Essentially the LLC has a firm order for $20,000 worth of "solution" and needs a $15,000 loan to buy raw materials (computers) to complete the sale and get paid. That *might* be a little more likely to get done since the order is in hand, but I think it would still need to be tied to the owner's own collateral or at least his signature.
almost Smilie
the order would be for $20k, $10k of which would be for equipment and would like a loan for that. The other $5k of materials would be coverd by me.
any idea could be requested/provided as collateral? the signature is no problem, of course
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Apr 2006
World dominator and rebel
37,696 Posts
4,037 Reputation
Original Poster
#12
Quote from YanksIn2009
:
Maybe. A bank could look at it that way, but with no track record of success, no other income stream and I would bet payment deferred\done in stages, I would think it would be a hard sell, esp. since if those services are not satisfactory, the client may decide to withhold some or all of the payment until it is rectified.
yes, the problem is that it would be a new LLC, thus no records. I have business credit card as sole proprietor, and could provide some records for that, but since it's not the LLC but my name, not sure how that would help
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Oct 2010
L9: Master
4,482 Posts
1,041 Reputation
#13
Quote from SDRebel
:
almost Smilie
the order would be for $20k, $10k of which would be for equipment and would like a loan for that. The other $5k of materials would be coverd by me.
any idea could be requested/provided as collateral? the signature is no problem, of course

The bank is going to go over your business plan as part of the loan application and you will obviously need to bring that up as part of it\show them whatever purchase orders and contracts you have. I just do not think there is much of a chance the loan officer is going to accept the idea of computer parts as collateral. You can ask, but in the end the bank gauges its risk and does what it wants to do. As I said previously, banks like to lend money to those that do not need it. You might get lucky and find a small business friendly bank that is willing to risk it for a decent rate. More than likely you are going to need to secure it against your home or other tangible assets.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Oct 2010
L9: Master
4,482 Posts
1,041 Reputation
#14
Quote from SDRebel
:
yes, the problem is that it would be a new LLC, thus no records. I have business credit card as sole proprietor, and could provide some records for that, but since it's not the LLC but my name, not sure how that would help

It likely would not matter even if it was in the business name. Business credit cards for LLCs are almost always tied to the credit of the member getting the card. It may be in a business's name and they may take the EIN of the business, but they also take your SSN as you are personally guaranteeing the charges\credit. Basically, it all comes back to you one way or the other.

https://www.finweb.com/banking-cr...antee.html
Reply Helpful Comment? 0 0
Page 1 of 1
1
Join the Conversation
Add a Comment
 
Copyright 1999 - 2018. Slickdeals, LLC. All Rights Reserved. Copyright / Infringement Policy  •  Privacy Policy  •  Terms of Service  •  Acceptable Use Policy (Rules)  •  Interest-Based Ads
Link Copied to Clipboard