Why banks will not lend money to you to start your business
Banks are not in the risk business. They are in loan money and get a paid business. A bank also wants to get the money back. So the type of loan that the bank wants to do is one where they do not have the risk of losing their investment and will receive payments on time and with interest.
Business Startup is a risk. Most new businesses don’t work. Employers sometimes think that banks must be interested in their ideas just because it is a good idea, in their minds. Because banks do not like risk or startup, banks are not all interested in seeing your business plan and lending money based on the plan. Many banks will charge application fees for you. Banks generally will only lend you money if you have security, you can give them.
Security is a fancy name for something they can take from you if you don’t return their money or pay for their interest. The most popular type of security for new business is your personal home. If you have equity in your home then if there is a possibility that the bank will lend your money to start your business secured by your home. They will likely lend you money to do anything if you have equity in your home. So, what is the equity in your home? Equity is the difference between how much your home and your mortgage amount. If your house is worth $ 250,000 and your mortgage is $ 110,000 then you have $ 140,000 in equity in your home. Based on this equity the bank will lend money to you.
So what happens if your business doesn’t work and the bank wants the money? The worst scenario is that the bank requires you to sell your home so you can pay it back. This is why your partner doesn’t want you to use your home as security! Placing your home on the phone requires you to be confident in your business idea.
A entrepreneur believes in their business and is willing to risk everything they have to make it successful. If you notify the bank that you are not interested in placing your home on your phone for your business, it shows a lack of trust in your business. Why do banks lend your money, and take risks, if you are not ready to risk your own assets?
To summarize; The bank will lend new business money if new business owners have security. If there is no security, no loan.