It takes money to start a business. A startup loan can help you get the working capital necessary to make that investment.
Here’s a way a lot of businesses owners run into trouble: They try to take out funding only to discover that their business does not have a long enough financial history to secure financing. Businesses in this situation would be better served by a small business startup loan, which usually doesn’t require the two-year financial history record that other funding types ask for.
Small business startup loans are designed to give young companies working capital. Here are the main points:
Young companies can also gain funds through an angel investor. These types of funds often require you to give up some of your ownership equity. If you aren’t careful, an angel investor could end up owning more of your company than you do.
The main advantage of a startup loan is that is that you usually don’t have to give up equity in your company. That means you still own just as much of your company as you did before you took the loan out.
If you pay back the loan on time, you’ll likely improve your business credit. A higher business credit score should help improve the chances that you’ll be able to secure a different type of business funding in the future.
You might end up paying a higher interest rate for your startup loan than a more established business would pay for a different type of funding. That’s not definite, though. It will depend on a lot of different variables, including your personal credit score.
Most of the time, your startup loan will need to be personally guaranteed. That means you’ll be on the hook for the loan. You’ll be liable if you default on the loan. On top of that, some lenders will require collateral. Depending on how big of a loan you ask for, the collateral could end up being your house. In this situation, if your business failed, you’d lose your house, too.
It’s hard to get a business off the ground without working capital. There are many ways to go about getting that money. You could seek out an angel investor. You could ask your family or friends for money. You could apply for a startup loan. Each option has its own drawbacks and advantages.