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Establish a Banking Relationship Before You Start a Home Based Business


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There are many considerations to be aware of when starting a home based business. Along with the important legal aspects, establishing a strong relationship with a reputable banker is essential. If you already have a relationship with a banker for your personal needs, it would be logical to expand that relationship to your emerging home based business. You may need this important relationship for potential loans in the future as your business expands. Sometimes depending on the size of the checks that you deposit, you may not have immediate access to your funds. That often depends on your banking relationship, including how long you have had your account and what your average balance has been. Establish your relationship with your banker, which often will be with the branch manager, in advance of applying for a loan or before depositing a large check that would normally take 10 days for it to clear. If you don't establish this relationship in advance, you might be turned down for your loan request.

Now what is the best type of financial institution to look for? Banks are commonly the first choice for many home based businesses. They can include savings and loans, savings banks, and commercial banks. Banks are the specialists when it comes to providing specific services for home based businesses. These services include offering a wide variety of loans as they work well with the Small Business Administration[SBA].

Credit unions might be another choice. They are like banks, but are owned by their members. Because they are member owned, they can pass along savings to their members in the form of lower interest rates on loans and higher interest rates on savings. Generally, credit unions offer comsumer rather than commercial loans and often do not offer special business accounts and services.

Credit card companies are known for having higher interest rates for loans than what banks and credit unions can offer. It is easier to achieve a loan from a credit card, but there are some pitfalls to beware of. Probably, the most significant one besides the higher interest rates is that even if your company name is on the loan, if you fail, the credit card company still looks at this as a personal loan and will hold you responsible when the monthly payment comes due.

Commercial finance companies are another source as they are interested in working with businesses. Some of the contracts with commercial finance companies can be attractive as they may be able to offer tax advantages.

Consumer finance companies are interested in making loans to businesses that have a hard time obtaining loans from other sources because of a bad past loan history. They will consider these borrowers to be a higher risk and will charge a higher interest. This source of financing should be your last consideration.

As you begin to gather the energy to develop a home based business, carefully consider the above suggestions so that you will be prepared for your business adventure.

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I am a recently retired general surgeon [ 40 years] living in beautiful Colorado Springs, Colorado at the foot of Pike's Peak.


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