Evan Carmichael explains why banks won't lend to businesses with no revenue. Banks demand three years of traction, collateral, and a personal guarantee that puts your house and car at risk. Bootstrap instead, start with services, and fund growth from profits once you have cash flow.
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If you want to get a small business loan for your company, you have to show that you're beyond the startup stage and already have significant traction with your company. Otherwise, you're going to be wasting your time, they're going to reject you, and you might as well put that time into actually growing your business. Hi, I'm Evan Carmichael. I believe that hungry entrepreneurs deserve help, and today I'm answering a question from one of my readers, Mo. Mo's awesome. Mo's been asking tons of questions, commenting on all the videos. I love you, Mo. Thanks for all the work. So Mo wrote in to say, "Are small business loans— to get a small business loan, are banks less apt to approve the loan if your company hasn't made any revenues?" So Mo, absolutely. You gotta understand where banks are coming from. Banks are not in the business of taking risk on entrepreneurs. Banks want to lend safe money to people. They want something that they can pull away in case you can't pay your loan back. So they want your house or they want an asset that they can take. If you don't have assets, then there's nothing for them to take. If you're trying to get a loan for your business, it's usually not possible until you've already had 3 years of traction and revenue. If you want to get a startup loan and you're just getting started, then you usually have to do a personal guarantee, which means that if you, if you don't pay your money back, they're going to take your house, they're going to take your car, they're going to take anything that you have anything that you have, and it's gonna be based on your credit score. It's always dangerous to take out a loan that has a personal guarantee because they can come after everything that you have if you can't make that payment. And you could end up broke, right? Nothing. I hate spending money till I'm making money, and I hate going into debt. I always try to fund my business from the profits. I put my hustle, I put my blood, my sweat, my tears, everything into it. My time, my energy to get some dollars out, and once that starts to happen, I expand. And maybe you need money for expansion, but I hate going into debt, especially when you're first starting up. I strongly advise against it because it can sink not only your business but your entire personal financial future. You make one wrong business decision and you're stuck paying this loan off for the next 20 years. I know it's hard starting a business, and I know one of the biggest challenges is getting money to do it. As much as possible, try to start a service. Try not to spend money until you find a way to make money. You test your concept out on a really small scale. Show that it works before you invest your own dollars and especially somebody else's dollars into the, into the business. If you're going to talk to a bank, again, the banks are probably the least friendliest to startups of any kind of investor. They want to see the 3 years of traction, history, revenue growth with your company. And if they don't have it, they're gonna take a personal guarantee on whatever money you want to take out. That's life dealing with the banks. I hope you enjoyed. For those of you watching, you like the video, please give it a thumbs up below. And I'd love to hear from you. I love seeing the comments come in. They make my morning every day. Please leave a comment below. And if you have a question, I'll do a video response for you if you leave a comment underneath. Thank you guys, I'll see you soon.
