On this personal finance blog, we sometimes speak of increasing wealth through entrepreneurship. A side hustle such as selling your crafts or blogging can really help to line your pockets, but it certainly won’t make you a millionaire quickly.
That’s why many people would still like to explore the path of the startup – a big business that they can eventually sell for millions of dollars. These would-be business owners often start off with lofty goals. But they soon find that they’re derailed.
Their sticking point? Finances.
Money is the lifeblood of your business. Run out, and your business will cease to operate. So what do you do when you’re just starting out and have no money? How do you get a capital injection?
Luckily, there are special loans available from some independent lenders created especially for start-up ventures. These are known as startup loans and the loan amount can range between $500 and $750,000.
If you are suffering from bad credit score and cannot opt for the traditional loans from banks, then this option can be a perfect alternative. Here, the loan term will be from 1 to 5 years and the interest rate will vary within 7% to 30%. Payment terms are usually from 14 to 60 days.
While it may seem like very onerous terms, think about how much your business would benefit from the capital injection. Without the funding, your business would not even get off the ground!
Let’s now turn our attention to the frequently asked questions related to these kinds of loans.
Who should use these kinds of loans?
One of the things that should be on the forefront of your mind is this: Do I need the funding while sacrificing equity?
Equity is often considered the most expensive form of funding because your company could eventually be worth millions of dollars. Imagine giving up millions of dollars in the future for a few thousand dollars in funding today!
That’s why a loan like this is best for early-stage companies seeking seed funding without the main of sacrificing the equity.
At the early-stage, your business needs funding to move to from the concept phase to producing a tangible service or product. That’s when this type of loan might come into action.
What are the terms of the loan agreement usually?
Depending on the lender, the borrowing limit is said to vary, along with the loan term. Common to most agreements is that repayments are primarily made on monthly basis.
Of course, loan terms vary with your credit and personal standing. You might also need to produce personal tax returns on your own for past two years.
For some other details, be sure to click here. These are National Debt Relief’s terms.
One way to reduce the debt burden on yourself is to offer up some kind of collateral for the loan. This might come in the form of personal property, like a home.
Otherwise, in the case the startup loan being used for purchasing equipment, then equipment is designed to function as the collateral. This is a great option as you’re not putting your personal property at risk.
There are many options when it comes to startup funding. The considerations (debt burden vs giving up equity, how much to give etc.) can make your head spin sometimes. In fact, as you progress and get funding from professional Venture Capital firms and investors, it can get even more complicated – convertible debt, options etc.
However, if you’re just looking to get your product off the ground, then I’d advise for you to keep things simple. Get a good old fashioned loan and secure the loan against business property.
Do you have any advice on startup funding? Please let us know in the comments below!