Unformatted text preview: s” at www.yahoo.com and www.google.com.
Important: Be careful in dealing with anybody who offers to help you ﬁnd ﬁnancing as a service for money.
These are shark-infested waters. I am aware of some legitimate providers of business plan consulting and
related assistance, but the legitimate providers are harder to ﬁnd than the sharks. Commercial Banks
Banks are even less likely than venture capitalists to invest in or loan money to start-up businesses.
They are, however, the most likely source of ﬁnancing for most small businesses.
Start-up entrepreneurs and small business owners are too quick to criticize banks for failing to
ﬁnance new businesses. Banks are not supposed to invest in businesses, and are strictly limited in
this respect by Federal banking laws. The government prevents banks from investment in businesses
because society, in general, doesn’t want banks taking savings from depositors and investing in risky
business ventures; obviously when (and if) those business ventures fail, bank depositors’ money is at
risk. Would you want your bank to invest in new businesses (other than your own, of course)?
Furthermore, banks should not be loaning money to start-up companies either, for many of the same
reasons. Federal regulators want banks to keep money safe, in very conservative loans backed by solid
collateral. Start-up businesses are not safe enough for bank regulators and they don’t have enough
Why, then, do we say that banks are the most likely source of small business ﬁnancing? Because small
business owners borrow from banks. A great deal of small business ﬁnancing is accomplished through
bank loans based on the business owner’s personal collateral, such as home ownership. Some would
say that home equity is the greatest source of small business ﬁnancing.
A business that has been around for a few years generates enough stability and assets to serve as
collateral. Banks commonly make loans to well-established small businesses backed by the company’s
inventory or accounts receivable. Normally there are formulas that determine how much can be
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- Winter '09