The thought of walking into a big bank with a business plan and facing a stern banker who does millions of dollars in deals each day can strike fear into the hearts of even the most determined entrepreneurs. For many start-ups, these fears are often well-founded.
Some bigger banks, like Bank of America and Bank One, say they'll lend to start-ups if the loans are backed by assets or an SBA guarantee. But because new businesses present a large, unknown risk to lenders, most major banks resist making conventional start-up loans without significant owner investment and marketable collateral.
Not so for smaller community banks. "I love doing start-ups," says Debra Lins, president and CEO of Community Business Bank in Sauk City, Wisconsin.
Lins acknowledges there are more uncertainties and risks involved with start-ups than with existing businesses; consequently, due diligence becomes more important. "Banks can't credit-score a start-up," Lins notes. "I look for passion and enthusiasm; [these qualities] will drive the entrepreneur." Beyond that, Lins' $25 million bank considers the borrower's credit history, background, business experience and personal investment in the business.
An entrepreneur herself-she put a business plan together and raised capital to start Community Business Bank in 1994-Lins, 40, actively encourages new-business loans. "They're fun for me, and many bankers out there agree," she says.
Jim Davis certainly does. "If an entrepreneur comes in and convinces us he or she has a sound business concept, we'll help that person write a business plan, put the funding together and even help with their cash flow," says the president and CEO of National Business Bank in Torrance, California. "Those are some of the services a small community bank can provide."
Davis' locally owned, independent bank, with $5.3 million in capital and $4.5 million in deposits, writes conventional start-up loans for up to $75,000 "without batting an eye" and also funds new businesses with SBA-backed loans.