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Chapter 1

The bank has turned you down. Now what?

Lending institutions are naturally the first place to look for the capital to start or expand your business. If you're just starting out, you're very likely to be turned down if you can't demonstrate at least one previously or currently successful venture, or participation in a successful one with others. If you're looking for expansion capital, you're likely to be turned down if your revenues and earnings history are mediocre or weak—for whatever reason which can be entirely legitimate.

The plain fact is that banks work with public money—not their own. By law they cannot finance risky ventures, even if the product or service seems promising up-front. Unless your start-up or expansion shows solid evidence to support probable success, such as substantial orders or a good earnings history, the bank sees you as an unacceptable risk. And you get turned down. For the record, few start-ups can demonstrate any substantial orders and are almost always turned down by banks because of the high failure rate of new businesses. Somebody like Microsoft Chairman Bill Gates could get money from any bank for a start-up, but don't you try it. Gates' track record speaks for itself.

If you're a startup, your best bet is not to bother wasting valuable time with a bank unless you have enough orders to cover the value of the loan. And they must be confirmed orders—not just letters of interest. Expansions, on the other hand, must demonstrate a revenue history sufficient to justify the market projections for the project.

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