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Old 03-28-2011, 12:09 PM
Location: Dallas
76 posts, read 300,442 times
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2 part question. My partner and I both have excellent credit and between us and we have raised about $50,000 in capital. We have no debt and we don’t have a house to put the loan on. So I was wondering how hard would it be for us to get a small business loan of about $35,000? 2nd question is, what would be the average interest rate be for us if we were able to get a loan of $35,000? The money would be used for a start up bakery. Thanks for the help!

Last edited by dinoo82; 03-28-2011 at 12:17 PM..
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Old 03-28-2011, 12:30 PM
11,359 posts, read 46,873,893 times
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A typical commercial lender will require that the entire loan amount be covered by pledged assets in this situation. Usually this will include your personal guarantees of repayment as well as any hard assets of the business that the loan was funding.

That means you'll have to have some demonstrated means to pay back the loan without reliance upon cash flow from the business. If all you have to pledge is your $50,000 against a loan, a bank will require you to bring all of your personal and business banking accounts under their roof, and a $35,000 loan will need to be matched by $35,000 on deposit (generally in interest bearing account or CD's).

If you were thinking that you'd use your $50,000 capital and a $35,000 loan to open a business with $85,000, then you're not there yet. You really only have the use of $50,000 at this time, and your bank will want to see a viable business plan, demonstrated ability, and a significant investment into the business on your part.

Interest rates will vary by the various lenders you approach. Best to visit your local banks and their commercial lenders in person and get their rate sheet, application forms, and general business lending guidelines for you to review.

Find out how interested they are in your business and what lengths they'll go to to help you out. The more information you can give them that supports the viability of your plan ... location, anticipated overhead, income projections, etc. ... the more they can base a decision on for you. It will help greatly if you can show them an active demand for your products, experience in the bakery business (not just a "home baker" with a knack for happy friends and relatives ... there's a big difference between commercial baking and home baking), and retail business experience w/labor management responsibilities if you expect to have employees.

Good luck with your venture. Your due diligence now will pay dividends for your business.
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Old 03-28-2011, 02:34 PM
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
26,832 posts, read 44,862,535 times
Reputation: 30924
Originally Posted by dinoo82 View Post
... able to get a loan of $35,000? The money would be used for a start up bakery.
I hope you are not a Partnership, as that will be a BIG red flag (to lender AND should be to yourself). YOU need to protect yourself AND your partner, form an LLC or Corp (C or S depending on your needs and preference)

Follow the advice above, AND I will recommend looking to 'non-conventional' sources for lending. (Small Community Lenders, Economic Development districts, City, County, Credit Unions, Benevolent Foundations, local investor groups with loan funds). It will help if you are in a 'rural' region that has USDA Economic Development Dollars flowing to it.

It is very difficult to find a lender for 'start-up' (usually they want 3 yrs profitable business that is showing solid management and good growth.) "bakery" is a strike against you due to the statistically high failure rates in food service businesses. (Don't take this personally, but be prepared for an uphill battle in both lending and operation)

You will need a very indepth business plan with substantiated projections (3-5 yr). Lenders will require life and disability insurance on the principle baker, business leadership, and guarantor of loan.

Owners must have a 20-30% equity stake in entire capitalization, and as mentioned 100% of loan proceeds covered by collateral. (lenders discount assets significantly to assure recovery of their $$).

Rate, For a start-up business, you will be paying Prime + 4 to 5% (or more) = 8.25% today 25Mar2011

Remember that commercial loans have a SHORT lending period, usually 3-5yrs, You can usually renegotiate at new rate w/ fees, or take your lending needs elsewhere.

I know it seems like robbery, but the lenders insist it is the cost of risk. They are obligated to be robust fiduciaries of their depositors.
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