Start up business loans are difficult to come by. If you’re not having luck with other sources, let’s dig in and start the process of winning a start up business loan.
The Bad News About Start Up Business Loans
It’s important to note that start up business loans are a lot like personal loans. In other words, the bank does not want to lose money by taking too great of a risk. If you and/or your business are too much of a risk, you’ll have to work harder to get your small business loans approved.
Because the vast majority of startups fail within the first few years, you should know that you’re considered a greater risk if you want a start up business loan. Ultimately, you should build credit for your business so you can borrow when you need to - and manage your personal risk.
Start Up Business Loan Sources
If you haven’t already done so, read the article about small business loans. You’ll find a good overview and some quick ideas. Give those a shot – and pay extra attention to preparedness – but know that conventional means may not work for you. After you’ve asked your bank and credit unions for start up business loans, you’ll need to get creative.
Common sources of start up business loans are the 3 F’s:
- Friends
- Family
- Fools
You're on your own with the first two, but there are ways to find the last one. Of course, these people are not really fools, they’re just more willing to take risks on start up business loans than traditional banks are. These might be known as venture capitalists or angels.
A good first step is to ask your local Small Business Administration (SBA) office for help. This organization is tasked with fostering economic growth by supporting small businesses – its mission is to help you succeed! There are a lot of general resources from the SBA that aren’t finance-related.
Next, you could visit the Kauffman Foundation. This group can point you to additional resources for your start up business loans.
Finally, About.com’s Small Business Info site has a Small Business Finance and Small Business Loans area full of ideas on financing. You can find out more about getting start up business loans, working with angels, and other methods of raising capital.
Note that alternative sources (not banks) may require that you “pay” more for your start up business loan. You may have a higher interest rate. More importantly, you may have to offer some equity in your business to receive funding. Finally, you may have to pledge your personal assets as collateral. Make sure that you know all the details and analyze them carefully before you agree to anything.
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