Why Lenders want a business owner to share in the risk

This is a copy of a weekly posting done in conjunction with Crain’s Chicago Business.

Posted by Ann D. at 8/26/2009 6:00 AM CDT

It’s a question that Score Chicago advisers hear often in their small-business workshops: “Why does the bank expect me as the owner to come up with most of the money to start my business?”

Quite simply, the bank wants to make sure that you have significant skin in the game. That’s the view of Frantz Osse, a Score Chicago counselor and former vice-president at Wells Fargo Bank.

Mr. Osse reminds would-be entrepreneurs that their suppliers, partners and family investors are putting money at risk. They expect the business owner also to put money into the venture. 

In fact, he cites this as a factor in the recent meltdown in the residential mortgage market: Many homeowners with no skin in the game could just walk away from the house, leaving the bank holding the bag.  

Similarly, lenders like to see that small-business borrowers are willing to commit their own capital to a startup. 

You can learn more about the lender’s perspective in
this 25-minute video interview with Mr. Osse.

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Posted in Chicago small business, Financing and Loans. Tags: , , , . Comments Off on Why Lenders want a business owner to share in the risk
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