Expert: Marina Lando - 6/23/2006

Question
Hi, my husband and I would like to open a business and would need a loan. We have been working with the volunteer SBDC counselors on our business plan and almost done. The loan officer at a local bank where we will apply said that our company (LLC) would need to set up and a bank account already opened before we apply for the loan. Is this standard? If we don't get the loan, we are not able to open the company. We have another small investor and a small amount ourselves, but not enough to start up the company. We would have then thrown away several hundred dollars setting it up. Also, from what we have read, to dissolve a LLC is not a simple procedure if we had investor's money in the account. Can the LLC be set up after loan approval? Thank you very much.

Answer
No you could not set up LLC after loan approval. You could not get a business loan without having a company.

Consider you chances of getting the loan.

You could not get a start-up business loan
  a)  without putting 20%-30% down payment - the higher the better
       b) if your credit score is below 640 (680+ is better)
  c) if you have tax liens, judgments, collections, charge offs, bankruptcy less than 3 years old (excluding medical)
  d) if you do not have enough collateral
  to calculate the value of collateral use this formula:
Collateral = (Real estate value*0.8 – Mortgage) + Equipment value *0.5 + Inventory *0.1
  e) your current monthly budget is higher than projected income from the business
  f) projected income does not include loan payment or not sufficient to pay for a loan
Business loans without real estate can be no longer that 10 years (in most cases). To play safe calculate monthly payments for 7 years term.
  g) the bank where you applied for a loan does not finance your business type
  h) you do not have experience in the industry where you starting business (not relevant to some franchise start-ups) or management experience.

Yes, you must have business checking - some banks use this requirement to get a new client - so compare terms in a couple of banks first - you want account without monthly service fee or at least with waved service fee.

Good luck.

Sincerely,
Marina Lando
Business Loan Quest
www.blquest.biz