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SMALL BUSINESS BANKING HELP

If you have attempted to borrow some money to buy something for your business you will appreciate what I am going to talk about here. Borrowing money from a bank to finance a small business is very iffy. Even if you are incorporated they will usually want you to give them further security for the loan in the form of a personal guarantee. This way if your corporation defaults on the loan, they can come after you personally. Getting an unsecured loan from a bank for your small business is next to impossible. What this means is that you have a loan limit with the bank just about equal to the pledgeable equity you have, in your business and personally. However difficult borrowing money from a bank for your business is, it's still a much better idea than using your available consumer credit, i.e. credit cards.

Credit card loans are a terrible idea. Even if you think you are getting a low "promotional" interest rate, you are going to be screwed. What the credit card companies don't tell you is that if you continue to use that same credit card for your normal business operations, all payments you make to the credit card are applied to the low "promotional" interest rate balance and none of the the payment is applied towards the higher interest rate balance created by your normal business operations expense. For example, if you borrow $5,000 on your credit card, then continue to use it for regular business purposes (say around $500 a month), the first month you pay off the regular charges, what the bank does is apply that money to the $5000 low interest balance (now $4500) and suddenly you are paying the regular, obscenely high credit card interest rate on that $500 you charged. You can continue this monthly until you are paying the 18% or better interest rate on the whole $5000 you borrowed. Voila, you are screwed. Don't let this happen to you, either as a businessman, or a consumer.

Most small businesses start up under-financed. They are bootstrap operations where the business is expected to literally pull itself up by it's own bootstraps. My general rule for small business start up is that you need to have enough capital investment or equity in your company to allow it to pay at least six months of business expense (including your owner draw) without making a nickel. Obviously this is a worst case scenario, but it does give you the "survival" factor you need to get over the humps in the road that all small businesses encounter as they go along.

The first Small Business Helper Forum is now up and running. If you have a problem or a question, and need a helpful, straightforward answer for it... just click on the link below.

Small Business Helper Forum