Using Banks To Help Finance Your Business Comments38 Comments

Lately I’ve been writing more about loans and credit. While some financial bloggers are completely against any kind of debt, I strongly feel that there are appropriate times to take on debt.

Today I’ll be covering why you might want to consider a commercial loan for your business.

When you start out on the road to entrepreneurship, you usually don’t have the funds to really get your business idea off the ground. So do you put your idea on hold while you save up for years? Do you start your business with bare bones structure with little chance of success?

No, you most likely go to your bank and try to get a loan to cover any start-up costs. That way the business you envisioned can truly take form. Your business can blossom and start bringing in profits as soon as possible.

In some industries, sitting on your idea too long could leave you too far behind your competition. Sometimes you need to get your foot into the market before others can build up domination. Waiting too long could kill your potential success.

Or there are times when your existing business desperately needs upgrades or has other funding needs in order to keep up with the competition. What do you do when some crucial machinery of equipment needs replacing? Well ideally you have cash flow to deal with those scenarios but that is not always the case.

The key with commercial loans is that you have a solid plan to pay the money back and in a timely manner. If there is a large degree of risk whether the business will pan out, you might want to rethink how you are going to finance your business. The bank will likely want to make sure you will be able to repay the loan too. Another option to consider is looking into accounts receivable loans where they will give you advanced funds based on your account receivables which will not be that big of a risk.

Personally I have off and on considered starting some kind of offline business. My thinking was that there must be various businesses with enough slack time to also manage my online business concurrently. I never thought it through enough to find a really good idea, but if I had, I would’ve eventually come to the need to take out a business loan.

One day I may still pursue starting my own offline business, but for now I will keep building up my online business. It’s inexpensive enough to start an online business that I can run it with minimal risk. Then as a I build up that business, I might later come up with another business idea that appeals to me.

In the meantime I still can get financial help from my bank. There are various business accounts that I could use to better manage my business finances. Currently all of my finances go through my personal accounts, but that just creates an accounting mess. Things would be so much simpler with a separate account for business transactions.

You can read more good debt in my post about why personal loans aren’t always bad debt.

Have you ever used a commercial loan? Do you have a business bank account to handle your business finances?

If you enjoyed this post, please consider subscribing to the RSS feed or you are welcome to leave a comment below.
By : Jeremy Biberdorf | 18 Dec 2012
Tweet this article :
Div line

38 thoughts on “Using Banks To Help Finance Your Business

  1. John S @ Frugal Rules

    Good post Jeremy. We’ve not had to use a commercial loan before. Thankfully our business has really no cost to entry, basically just things that would be associated with networking. Though, if we’re able to turn our vision into a reality then we might have to and that would be ok. We do have a business bank account that we run everything through. It makes it much easier from a tax perspective.

    Reply
    1. Jeremy

      Fortunately there are all various kinds of businesses that you can start up with very little money these days. I know I would’ve been a lot more hesitant to start my online business if it would’ve cost a lot more to start up. Instead I could get started with minimal risk and really test the waters.

      Reply
  2. Jordann

    My fiancé runs his own business and he opted to start slow and build up little by little, therefore not having to take out a commercial loan. Being debt averse, I’m very happy he did this! That said, a commercial loan is often the only way certain businesses that require up front capital investment can get off the ground.

    Reply
    1. Jeremy

      That’s awesome that he was able to start up his business that way. In some niches, that is very doable, but there are others where you just can’t get by without certain equipment or inventory. Good luck to your fiance with his business.

      Reply
  3. Joe Cassandra

    I also want to build up an online business first (due to low costs) and once I build up that rep and following, I’ll have a market to test any offline business proposals/products

    Reply
    1. Jeremy

      Good idea Joe. An online business often can lead to offline opportunities like that. Personally if I were to start an offline business, it would probably be on something unrelated while still keeping my online business going on the side.

      Reply
  4. Grayson @ Debt Roundup

    I was on the verge of using a bank loan to fund my e-commerce business a few years ago, but then decided to start small and do what I could with the money I had. Now that I look back at it, I would have rather go with the commercial loan because it would have cost me less in interest.

    Reply
    1. Jeremy

      That’s the route I went too, but I sometimes wonder how much different things would’ve been if I had secured financing and was more serious from the start. That loan might’ve actually been good motivation to get making decent money quicker.

      Reply
  5. Jacko

    People should remember that banks only lend money to people who don’t need it for a reason.

    They don’t want to take risk.

    Another thing that people need to know is banks aren’t there to HELP you they are in business to make money.

    If you knew better you would do better.

    Reply
    1. Jeremy

      Of course banks are out to make a profit, but that doesn’t mean their services can’t help you. It is up to you to efficiently run your business and get the loan paid back asap. Sure the bank might be hoping you take the full term to pay back the loan, but that’s all in your control.

      Reply
  6. Pauline

    I have used a commercial loan for a company I started in Barcelona, we had the support of the chamber of commerce so it was pretty easy to get, and nice to see that your personal assets aren’t tied to your endeavors. Being a business loan the rate was pretty low for an unsecured loan.

    Reply
    1. Jeremy

      I was actually wondering how the liability would work and whether your own assets would be at risk. I guess it probably depends on how much faith they have in your business. If it’s a riskier business they probably want some kind of collateral.

      Reply
  7. Edward Antrobus

    I can’t see myself ever getting a commercial loan. My rule is $100. That’s all I’m willing to invest in a new venture. If I can’t get it off the ground with $100, throwing more money isn’t going to help.

    Reply
    1. Jeremy

      It really depends on what kind of business you’d want to run. For anything online, minimal initial investment works, although I’d normally spend more than $100 to at least get a quality design. For most offline businesses, $100 won’t go far at all.

      Reply
  8. Veronica @ Pelican on Money

    I’ve never used a commercial business loan but I have had banks try to push loans down my throat when I did well for a while in affiliate marketing. It’s funny because when I first started and tried to figure out a way to maximize my daily spending on adwords, the bank sure as heck wouldn’t help me with that. But then, once the money was made and they saw it in my account, that’s when the offers start coming in. I said, you didn’t help me then, so I won’t be helping you now.

    Come to think of it, I don’t like how people have such easy access to see my bank accounts. Even when I go deposit a check they pull up my account and can see my balance. They do it to pitch more products but in terms of privacy it’s totally lame. I don’t want some bank teller who will most likely not be in the same position next year to see my personal finances, yet alone my business dealings. Ugh.

    Reply
    1. Jeremy

      I’m so with you on the banking privacy. I totally notice a change in attitude once they see my account balances. Suddenly they’re treating me better and pitching extra services. Just because I need to deposit a check, why should they be given access to my entire account?

      I’m not surprised you had problems getting funding with your online business early on. Banks seem especially skeptical about online income. They really won’t believe you until they see the money in your account.

      Reply
  9. Savvy Scot

    Personally, I wouldn’t – I feel that unless you absolutely need to, commercial loans are not a great idea. The internet has provided us with a fantastic platform to try different concepts and ‘startups’ for almost 0 investment. That said, there are undoubtedly numerous circumstances where this is not possible!

    Reply
    1. Jeremy

      An online business isn’t right for everyone though. Personally I feel that sitting on my ass for so long has been bad for my health. So it would be great to be able to start a business that helps balance that out more. I could see some retail businesses working out well, but you need to have a certain amount of inventory to get started. Plus there is all the licensing, lease agreements, etc.

      Reply
  10. The Happy Homeowner

    I’m with Savvy Scot on this one–I wouldn’t take out the loan unless it was my only option (then of course I’d also have to have the precise plan of how to pay it back as you’ve mentioned). I’m interested in learning more about online business ventures at this point.

    Reply
    1. Jeremy

      I wouldn’t blindly proceed one, but it is something I wouldn’t rule out. If you’re going to be limited by your own personal savings, you are limited in what kind of business you can start.

      Reply
  11. Kim@Eyesonthedollar

    In my experience, it has been pretty hard to get commercial loans for real estate or purchasing a business. It’s pretty easy to get financing for equipment, but lenders don’t like “blue sky”. You need something worthy of repossession or a huge down payment.

    Reply
    1. Jeremy

      That makes a lot of sense. The banks need to protect their investment. So they wouldn’t want to risk lending money to every person who has some kind of business idea. They know full well that a large percentage of new businesses fail within the first year.

      Reply
  12. Chris @ Stumble Forward

    As a offline business owner I’ve been lucky enough to say that we haven’t had to take on any kind of commercial loan. In fact, me and my business partner were able to put some money upfront as well as my father lending us some extra cash to get going.

    However my business wasn’t a complete start up were we had to identify our market simply because we were taking it over. This allowed us to make money right from the start were most businesses don’t have this kind of opportunity.

    On the other hand we’ve been thinking about opening up a new shop and may likely take on a commercial loan at some point because our current location is fairly limited.

    Reply
    1. Jeremy

      I agree that is a more rare situation. When taking over an established business, it would be a lot easier to succeed. With a brand new business there is all kinds of uncertainty. So much more money would be needed to really get a brand new business going. Good luck if you do decide to open a new shop. Sometimes that kind of expansion is just what you need to able to keep your business growing.

      Reply
  13. Canadianbudgetbinder

    I’ve never needed any type of commercial loan but I think if you know you have a smashing idea and that it will take go for it. Life is all about risk but be prepared that anything could happen.. but that is the risk any business takes. When it comes to the loan they will want to see a solid plan and like Jeremy says I wouldn’t sit on it long because before you know it the competition will swoop in. Mr.CBB

    Reply
    1. Jeremy

      You’re absolutely right that it does come down to taking a bit of a risk. With thorough research and planning you can reduce those risks. Sometimes you have to take the plunge though and pursue your dreams.

      Reply
    1. Jeremy

      I’m in the same boat with my side business. It’s too small to need any additional funding and I haven’t really needed a separate bank account yet. It would help with accounting though.

      Reply
  14. InvestitWisely

    Commerical loans while not easy to acquire can make or break a business. No one hits the ground running when starting from 0.

    Reply
    1. Jeremy

      Yep, it is long, slow climb if you try to start a business without any money to invest in it. Taking that route can really decrease your chances of success. Before the business gets a chance to blossom, you might have to go back to working a day job.

      Reply
  15. Glen @ Monster Piggy Bank

    I’m actually pro debt, so long as it’s for the right reasons. Debt can be great so long as you are using it to further a business or an asset which you feel will appreciate in value over time.

    Debt for the latest big screen TV or SUV is not what I consider to be a good thing.

    Reply
    1. Jeremy

      That’s a good view to have. Debt doesn’t have to be some evil thing that only does harm. Used responsibly it can be a very beneficial tool. It can open all kinds of doors, but you do have to pay it back as soon as possible to prevent large amounts of interest that could offset the benefits.

      Reply
  16. Kyle @ Rather-Be-Shopping.com

    I have also considered opening an offline business that would let me run my online business at the same time. The one idea that I like is a storage unit business that has an office where I could work both jobs simultaneously. Not sure if they have those where you live.

    Reply
    1. Jeremy

      Sounds like a good option. I’d think it would be a substantial investment to get that kind of business setup though. There would be plenty of time to fit in online work. It’s something to consider anyway.

      Reply
  17. wole

    The most common excuse for not owning a business is an empty pocket. People live with the wrong mindset that you can only own a large company if you have a large capital, this is just wrong and unfortunately this is the reason why young boys and girls have delayed very profitable business ideas. This steps will help you build a large company with no capital at all and get your good investors that can make your dreams come true in life.

    Reply
    1. Jeremy

      That is very true. For some reason people know they can finance a car or house, but don’t realize the same is true for a business. It’s just a lot riskier since the business can crash and burn without making a dime. If you have a good idea and a solid plan of how to make it work, bank financing can really help put your plan into motion.

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>