Banks vs. Venture Capitalists

        In my book, Business Fits, I have a chapter called “Myths About Starting a Business.”  One of the myths is “Banks Make Business Loans.” 

        I have had potential clients say they need help writing their business plan so they can go to the bank and get a business loan.  They are under the misconception that a bank will make a business loan if the business plan is good enough.  Banks do not make loans based on a business plan. 

        Banks make loans that are secured by assets to people with good credit ratings.  The only reason a bank asks for a business plan is to show you have given it some thought. 

        Often it is easier to get a second mortgage on a home in order to start a business than it is to get a business loan.  I once heard a woman say she wanted to get a business loan because she didn’t want to risk losing her home if the business failed.  The bank would want the home or some other asset for security anyway.  Why would the bank want to make the loan if the woman was not willing to assume risk?

        Banks are in the business of loaning money.  They are not in the business of taking speculative risks.  If you are going to a bank with a business plan to get money, you better be to pitching the banker you are meeting with to be an investor personally.  The chances of that happening are much better than obtaining a bank loan.

        Unlike banks, venture capitalists do make investments in companies that are not secured by assets if they feel the potential return is large enough.  If you have ever watched the TV show Shark Tank, the sharks often question if the considered business has enough growth potential.  They are looking to invest in businesses that can grow and give them a good return on their investment. 

        Venture capitalists look for investments in businesses that have some track record.  They seldom are interested in true start-ups.  A venture capitalist may invest in ten businesses in order to find the one that will make it big. 

        A venture capitalist is looking for ownership in the business and not just interest on a loan.  He may want controlling interest in the business in order to protect his investment.  This means the entrepreneur is giving up control of his or her dream.  

        If you are looking for capital for an entrepreneurial venture and a bank or venture capitalist is not right for you, you should consider more innovative financing options.  In Business Fits, I explain how banks make loans based on asset equity and credit scores.  I also discuss venture capitalists and creative financing ideas.  I once bought a Ford-Mercury dealership with $1,000 cash and $1,000 equity in a car.  It is possible.

        Business Fits is available on Amazon as an eBook and a paperback. 

God bless President Trump and guide him to make America great again. 

                             http://BusinessFits.com