If you are bootstrapping a business on the nights and weekends while you keep your day job you are probably trying to find a way out of your job.
Before you do that, let me explain why an alternative source of income is critically important if you want to secure a loan for your early stage business.
Banks look at your “Global Finances” which means they look at your personal + business finances. The banks wants to know that you can pay back the loan even if the business fails. Often times business owners come to the bank and say something like this, “I just quit my job to work on my business full-time, things are going well, but I could really use a loan to help secure things a bit.”
The banker translates that as, “I am in trouble, I quit my day job too soon, and now it is getting stressful because I don’t know if I can put food on the table next month.”
You are most likely to get a loan when you don’t need one. A great example of a dream loan applicant is a recent microloan applicant that I met with. He started a business 9 months ago and is working on his business at least 40 hours a week. He also has a full-time job and his wife works full-time. This proves a lot to the banker:
- You are committed – you don’t “have” to start this business, you and your wife already have jobs, so you must be committed to this business.
- You work hard – Putting in 80+ hours of work a week for almost a year goes to show that you aren’t afraid to work hard, and you will work hard to pay back your loan.
- You have backup income – This particular business owner was not pulling a salary from his new business. This is a great situation because you don’t have to make the choice between paying yourself and making a loan payment, you don’t need the salary right now.
If this business owner had already quit his day job I would be terrified of this loan application, but instead I feel confident that the loan will be approved simply because he kept his day job until it was painful. Keep that in mind as you debate when to leave the security of your day job.