There is a video flying around the internet where entrepreneur Mark Cuban is quoted as saying that “If you are starting a business and you take out a loan, you are a moron.”
Apparently, I am one of those morons.
Cuban’s comments revolve around his belief that there is so much uncertainty in a start-up company and that banks don’t care about your business, so getting a loan to start a business is risky and creates conflict.
Well, Mark you are right. Most banks don’t care about your business. In fact, most won’t even bother talking to a startup.
That’s exactly why UT Federal Credit Union in Knoxville, Tenn., launched the Line12 business microloan program.
You see, as a credit union, it is in our DNA to impact our community and our members. So, if the only way a member can bring their startup to life and fulfill their dream of owning a business involves a loan, then you can count us in.
Rest assured, it’s not about the revenue to our credit union. In fact, we probably have more expense associated with those loans than we do income—although our credit union has landed million-dollar loans due to the exposure.
And yes, we know we are “saddling” a startup with debt. That’s why we provide more than just capital in the form of additional resources to help borrowers increase their chance for success.
It’s easy to say as a lender, but there is such a thing as “better” debt to have. I’d much rather a member borrow $5,000, $10,000, or $20,000 to start a business than to eat out or shop.
So, is a loan for a startup right for everyone? Absolutely not.
In fact, UT Federal goes to great lengths to vet out our applicants through a process that includes the use of a proprietary software solution. We take only those people who we feel can afford the debt without relying too much on expected business income.
We also rely on our committee of outside experts to tell us which startups they feel have the best chances of succeeding. Unfortunately, we have to tell far more applicants “no” than “yes.”
Cuban does point out that there are plenty of ways to start businesses inexpensively through hard effort rather than capital. I couldn’t agree more.
In fact, I’ve started businesses for a few hundred dollars that have brought me thousands of dollars in return. But there are times when the right idea takes capital to scale.
That’s when UT Federal Credit Union is there.
JONATHAN PATRICK is senior vice president/chief lending officer for $222 million asset UT Federal Credit Union in Knoxville, Tenn. He’s also founder of FeasibleFunding.com, the software solution behind the Line12 program, and a 2014 Credit Union Rock Star. The Line12 program is currently being tested at two other credit unions. Contact him to learn how your credit union can participate.