What kind of loan can I expect for beginning a small business? (incorporation, credit card)

[dhanu86]

I'm 22 never owned a house, creditscore of 730, I build furniture in my spare time and sell it, I'd like to start buying some and selling it like a small business but I don't have that kind of money. What loan can I expect from a bank or anywhere else?

The amount? is it given all at once? when does it need paid back? interest? requirements?

or maybe you can share what u did and what kind of business it was..

[desertsun41]

As a 30 year veteran in my own business, and as one who has wide open eyes in identifying this economic depression we are in, and knowing how corrupt and crooked the banks are while investing all their stimulas money to China............I'd say start the business in China.

Buddy you have a better chance of hitting the pick 6 lotto 7 consectutive nights in a row then you would getting a bank loan in your current situation.

I know it sucks but try a loan from family first.

You have to think where your customers will come from. No one is buying furniture now. No one is buying much of anything right now.

I sure do wish you luck. What your proposing is a wonderful satisfying business to be in.

[StoneOne]

Any loan you'll be able to get will be a personal loan, probably unsecured with interest running 10%+. You will not be able to get a loan in the business name only. Once you're what they call a "going concern," generally after 2-3 years of respectable performance, then you might be able to start thinking about business loans.

[sunsprit]

Even before the current "credit crisis", when money was readily available to lend and banks were seeking places to put it to work ...

You wouldn't have qualified for a business loan. Nor do you qualify now.

Without some real assets to pledge to capitalize a loan ... equity in a house, money on deposit, or similar cash value property ... you have no way to get a loan from a bank.

Perhaps the only money available would have been a "small business loan" from a government agency (SBA guaranteed bank loan, maybe), which would have required a business plan proposal and an intent to do a lot more than just "build some furniture in my spare time" and "buy and sell some". You don't have a "real" business operating out of your garage at home, you have a "hobby" business. Not only that, but in many places you are violating zoning for your residence with your business/manufacturing/retailing products ... everything from residential zoning to commercial fire requirements.

So, until you can put together a realistic business plan, some assets to capitalize a loan, a legitimate business location for manufacturing/retail sales, a commitment to run it as a business (not a hobby) ... you don't have anything to go to a bank or lender with.

Your best sources for some working capital would be family, friends, or your own unsecured lines of credit from credit cards, or savings from your current income.

True, too ... any money lent to you by family and friends will be an item of contentioin in the near term unless you pay the money back very quickly, or the source simply considers it a "gift" from the beginning of the "loan" and doesn't really expect repayment.

I know several people who have started with a "hobby" business in this trade, heading out to garage sales, storage facility auctions, and similar sources of furniture/furnishings ... and built it up by their bootstraps into a storefront business in a commercial district in a city (on "antique" row, or similar). Over the years, they knew where they could sell household "stuff" wholesale very quickly, and specialized in buying "estate" sale merchandise at several retirement communities in the region. They'd buy the entire household ... clean it out, sell the stuff that they didn't retail at their own store, generally in the same day ... clothing, household items, lamps, art, etc. ... and take the furniture back to their warehouse and retail store. Did a goldmine business in "cheapo" furniture to the area college students and young folks looking for serviceable but low cost furniture. Typical dresser was around $100, bed frames $20, small dining table $20, nightstand $15, small bookshelf $15 ... beat up, cheap, even ugly ... but somebody could use it. With an old chevy van and small pick-up truck, the prices were low but the profit margins were very high.

Several folks became multi-millionaires doing this .... you have a lot of "buying power" when you show up at a "yard sale" with a bunch of cra* and some good items and the folks are really hoping to make everything go away for cheap, and offer them a flat amount for "everything", and you'll clean it up, haul it away right now. They get the money they want and are done with the sale, and you get a bunch of stuff for the dumpster, to sell quickly (at wholesale to the folks who deal in that stuff, clothing, housewares, etc), and some merchandise for your storefront. There's a lot of folks with yard sales these days, a lot of stuff at flea markets, auctions, and lots of merchandise for you at "cheap" prices. But you do have to treat it like a business ....

[StealthRabbit]

forget the bank route (and thus SBA too), until you have a sustained profit and respectable cash flows and income tax statements to match. Banks are a total pain anyway.

As mentioned:
personal $
Family
Friends - I would find an older 'wise' person (preferably non-family) who believes in you and is willing to help / partner with you. If that happens be very diligent to provide them with good accounting and frequent updates. (and gratitude )

beyond that you will need to offer some type of security to capitalize your business.
Some options are looking into micro finance, but they are gonna want some history / security.
There is some 'peer2peer' lending.

You want to find something for about 2% above mortgage rates. Run away from anything over 8% in today's climate. (Or realize that you are giving lenders a feeling of risk)

I did my business stuff via buying a CHEAP house at age 19, then putting a line of credit on the house, as equity availed. (This is risky for business, don't recommend it AFTER you are married and have kids to house). As a single person risk is lots easier to deal with. I spent plenty of nights sleeping in cars, but the family was not so impressed when they tried it...

Any business takes ~ 5yrs of TOTAL sacrifice; the successful ones will let you go home on weekends after 5 yrs.

Good luck, and keep focused on how to get your money and talents working FOR you. the ultimate goal is to get passive income to support yourself. (From business, real estate, investments...)

[mbuszu]

I had already typed out a response when upon re-reading your post I thought of something. You already have a business! You don't need to "start up a small business"... you're already making and selling furniture. Thus the advice already in this thread is somewhat irrelevant to what you really need. Here's what you need to do... and this advice is coming from someone who was in a similar situation not too long ago:

1) Create a business plan (find a template and free examples online). The exercise in doing this, and trust me it is exercise for your mind as you'll be forced to do research and to think about things you probably never have before but absolutely must for business success. Use your previous experiences and previous sales of furniture to develop realistic financial analysis and projections out to a year and then also two to five years. As part of your business plan development investigate free-cheap ways to both advertise and sell your product.

2) Focus on free-cheap ways of turning your current hobby into something more profitable, more revenue-generating AND something "more legit" if you haven't yet incorporated your business and begun reporting expenses and profit to the IRS and State Tax agencies. The truth is that with minimal effort in this area and business incorporation you can probably already start reducing your income tax responsibility by taking the costs of your hobby and writing them off as business expenses against your current income. You will probably want to hire a tax accountant that has direct small business accounting experience to assist you - and my recommendation is to find someone that actually owns their own CPA firm since they are fellow entrepreneurs (please don't go to one of those large national franchise firms... trust me, they are not what you're in need of). You'll find that such an accountant will help advise you regarding setting up your business and what deductions to make to maximize your personal income.

For future ability to take out a business loan, all of the above are "must dos" today. There's literally nothing rocket science-difficult about "starting a business" nor is there a need to spend a lot of money nor to even borrow money at the outset. What banks will want to see when you do decide to approach them is simply proof that you can do what you propose with their money; that you're not a major risk but instead are "a good bet." The best way to do this in my experience is through a track record of success and a business plan which shows that you know your stuff.

Lastly, there are a lot of naysayers "out there" who will claim that you cannot get a business loan in this environment. Although I agree with some sentiments in this thread that your own likelihood of getting a loan today or in the next 3 months is probably near 0%, it's not because of the economy... it's because you haven't yet turned your hobby into a legit business (at least from what little what I can go on in this thread). Create a business plan, seek the advice of an experienced and entrepreneurial CPA, get incorporated, start recording your expenses and sales for your furniture sales, and a few months down the road you'll have something that banks and credit unions will take very seriously when you approach them.

[desertsun41]

I might add one more thing to these other good answers.

Im sure you build a beautiful custom piece of wood furniture, but today people not only can not afford expensive custom furniture but they cant even tell the difference between it and Kmart furniture.

I know because I am in a simular business as I mentioned above. Lets just say I am contracted to build a 10 X 10 X 10' high TV entertainment center out of cheap oak. My materials cost before I even add labor comes to $2000. You can go into Walmart or Kmart and buy one for $199.99. It is no matter that it is made of corrugated cardboard with wall paper finish. Price is most important, quality is dead last in making consumer choices. People will better spend their money on a $5 cup of coffee.

Custom made one of a kind works of art is something only the very wealthy can afford anymore. Everything mass produced at a cheap cost is what the consumer wants and can afford. And making what the most people can afford is how you target your market.

Over the years I have gone from building from scratch to buying cabinet componants from a major manufacturer (already finished) and creating/designing the same product as I built from scratch years ago. I get more business now but even that is dying. People cant even afford to feed their family today, buying luxuries like furniture is something of a dream anymore.

Hell here is the raw hard truth. Just a couple years ago I had maybe 4 to 5 people per week walk into my store with a $25,000 or so budgets to design them a new kitchen. Today if anyone walks into my showroom they are looking to purchase a new drawer that their kids broke. Maybe some pull out trays because their back is going bad and they cant bend anymore.

[texdav]

Abank is going to want you to invest so much and cover the loan with assets as colateral. Your best bet is probably thru a local government programs like economic opportunity commissions that handle federal money grants.

[litlux]

Banks understand pizza retailers, and hairdressers, and some franchise operations. But they are at a loss when trying to figure out most original business plans since there are no statistics for them to rely on.

Banks rarely make loans to start up businesses they don't understand.

And starting a business already in debt to the bank is not how to be successful.

[actsmith]

Originally Posted by dhanu86

I'm 22 never owned a house, creditscore of 730, I build furniture in my spare time and sell it, I'd like to start buying some and selling it like a small business but I don't have that kind of money. What loan can I expect from a bank or anywhere else?

The amount? is it given all at once? when does it need paid back? interest? requirements?

or maybe you can share what u did and what kind of business it was..

Before the loan route, keep in mind that there are some non-government, strings-free grant funds available to entrepreneurs.

The National Association for the Self-Employed awards grants on a rolling basis of up to $5,000---I believe. (You have to be a paid member, though.)

There are a number of other organizations that also make small business grants (non-government) which you could apply for...for free. Check out the Cheap Therapy Pay It Forward Grant and the Idea Cafe Grant and grant center.

If you search, you'll find a number of good resources I'm sure.

Andrea