Have Skin in the Game

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It’s highly unlikely that you’ll get a business loan unless you’re personally invested in your business. So you’ll need to demonstrate that you have personal liquid investments to invest in your business, or that you already have significant personal assets tied up in your existing business.
You may also be asked to post collateral to secure the loan in case you default. In some cases assets from your existing business can be considered collateral. However, you may need to pledge personal assets as well. In your application, you’ll be expected to list any personal or business collateral you may have available.
According to Grafton Willey, managing director of business consulting firm CBIZ MHM, banks will look favorably at applicants willing to put a significant amount of their net worth into their business. As he points out, “If you are putting $100,000 into the deal and your net worth is $150,000, it shows you are committed,” says Willey. “If that same person put up $100,000 and has a net worth of $2 million the bank will be more concerned.”
You may be asked to sign a personal loan guarantee. If you’re not willing to do so, that can signal to your banker that you’re not really committed to your business. Bankers will have their own “skin in the game,” so you should too.

Game Plan

  • Be ready to show how much personal capital you have to risk in your new business and that these funds and assets are available.
  • Make sure that the personal and business financial statements you submit reflect the capital you can invest.
  • Ask around. See how much in personal assets business bankers in your area feel is appropriate to secure a loan.
  • Think carefully before you pledge property such as your home as collateral. You may not be willing to lose your home if your business fails.
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