5 Lessons for Bootstrappers on Dealing with Banks

If you are going to run and grow your business without a lot of other people’s money, then you should get used to dealing with bankers. Today we discuss tips on banks, bankers, and banking for bootstrappers.

You want a relationship with the bank

You are gong to need a relationship with a bank if you are going to be in business. When it is time to get a credit line, a bank draft, or a letter of credit, you are going to wish you had a banker to call. You will probably want a local bank to process your credit card sales transactions.

Banks do not finance business plans, but they help the SBA do it

Banking laws forbid a bank from loan you money on your business plan no matter how good it looks. Those laws are written to protect the depositors whose money the bank is using. The bank can only loan you money for your startup if you are ready to put assets that you will lose if you business fails. It can loan against the assets, not your plan.

Some banks do give loans to startups in the United States because the SBA works through local banks. The SBA guarantees up to 70 percent of a business loan, so the banks can take the risk without violating the law. What you need for that is a local bank that works for the SBA.

Good and bad reasons to borrow money

The best reason to borrow money is to support you company while waiting for good customers to pay up. You have already made the sale, but you sold to a company it is going to pay you in several months. When it involves a good client who you are sure will pay, this is safe. Borrowing to build stuff that you already have orders for is good, too. Borrowing to fill cash-flow gaps while waiting to get real money is still risky, but sometimes necessary.

Do not borrow money on future hopes. that is just gambling with the bank’s money and it is a bad bet if you will not be able to bring in the money.

Not all banks are the same

There are small local banks that emphasize small business and services. The federal government protects those against banking disasters you fear, so it is not likely you are significantly safer with a larger bank. The key is to have somebody there you can call to ask questions and trust the answers. In some cases, you can get that with the right branch or person at a larger bank.

As you start up, choose your bank well. Talk to a few and get advice from people you might know.

Be prepared to change banks

No matter how much you like your bank, be ready to make the switch later on. Banks’s change strategies and policies. Sometimes people make the difference, but sometimes they cannot make any difference on something important and then they switch banks.

The Bottom Line

Bootstrapping your business through its earlier days can put you in a position to raise more money, receive a higher valuation, and retain more control of your company but it is not easy.