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Banks and lenders look for a specific mix of factors when considering small business loan applicants. One of the most important aspects of an entrepreneur’s loan request is how much capital he or she has to contribute to the business. It is called putting ‘skin in the game.’ Lenders want to see that the owner is so passionate about the new company that he or she is willing to put personal funds to ensure its success.

This idea of supplying part of the funds from one’s own pockets is also known as an equity injection. Without a significant chunk of change to contribute, most lenders will not even consider a small business application. Banks like to see business owners pulling together 30 percent of a startup firm’s cash needs on their own and 20 percent if one is looking to purchase an existing business. Coming up with that much first show lenders that the entrepreneur is serious and committed to the business idea.

Of course, the need for capital is the reason business owners search for bank loans in the first place. In order to piece together that 20 to 30 percent, entrepreneurs can start by hitting up friends and relatives for investments. If that is not a viable option, some applicants can turn to things like personal savings, 401k rollovers or angel investors. Business owners should be aware however that banks will not accept borrowed money as ‘skin in the game.’ A home equity line of credit or other type of loan must eventually be repaid and does not count as one’s own funds.

A bank loan can be invaluable to getting a small business up and running, but banks need to see that an entrepreneur is serious about taking the company to financial victory. Raising a little capital is essential to getting a lender to contribute the rest of the needed funds.


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources