Start up business loan and finances


Being a start up and making a place for one self in the market is easier said than done. In fact the initial period for a start up in the market is very difficult. The first and foremost obstacle that one has to overcome is in terms of finances. Knowing that you are a newcomer, most banks refuse to provide with financial loans in order to aid the start up for basics like in setting up the company, hiring employees, etc. With banks shutting their doors on the face, most people give up their dream of entrepreneurship or his or her own company. But that is not really the end of it. There are numerous other options that one may choose from in order to finance his or her own start up. Yes, there are risks involved, but then only those achieve higher goals who dare to take the risk. Click here to find out more about organizing your own business.

Getting a plan ready

It is best to prepare a concrete financial plan. It should discuss the business objective very clearly. Other factors include the nature and size of the business, growth and expansion plan, vision of the business idea, etc. In order to obtain a financial loan, the plan must also have the three basic indications of,

  • Total finance requirement
  • Source of raising the finances
  • Application of the funds

It is ironic that one needs money to make more money. But where will a fresher get the money in the first place? This is the dilemma that most start up owner goes through during the initial days in the industry. Some options for a start up business loan include,

  1. Retirement rollover money
  2. Personal loan
  3. Loan against property
  4. Credit card loan
  5. Venture capital
  6. Family or friend loan
  7. Crowd funding
  8. SBA loan
  9. Loan from non-profit

Let us discuss each of these choices in depth.

  1. Retirement rollover money

It is always an option to use the money that one has been saving for retirement or the one meant to suffice post the end of the job duration. One can borrow 100 percent of the retirement savings to set up the start up venture. However, it is wise to hire the help of a professional financial expert who can provide insight about the most profitable use of the saved funds devoid of any tax payments or minimum penalties.

Pros: the retirement fund kitty can increase if the business clicks and prospers with time; zero debts or interest amounts to be paid for the sum borrowed.

Cons: the retirement savings can go for a toss in case the business fails.

  1. Personal loan

The most commonly used approach for a loan is the personal loan. Often one need not clarify the reason for the loan, so the funds can be used for any personal reasons, be it marriage, health emergency or for a start up business set up. With minimum paper work and clarifications, one can expect to start rolling the start up in about a week with the help of the persona loan finances.

Pros: the loan is sanctioned and made available very easily and quickly.

Cons: banks generally charge a hefty rate of interest plus there is a fixed limit on the amount of the loan approved for a personal loan.

  1. Loan against property

Loan against property or home equity is another popular choice among people. If you have a house, land or any other property, you can get a loan against the property on mortgage. Banks allow almost 80-90 percent loan against property.

Pros: banks generally charge a low interest rate on home equities.

Cons:   in case the business doesn’t work out, you can lose the house, land or property for good.

  1. Credit card loans

One can also choose to take a loan from his or her credit card account. This is convenient for most people with loans being sanctioned quite quickly and easily. The loan amount depends on the credit limit that one has for the credit card.

Pros: easy and convenient way to opt for a loan

Cons: limited amount dependent on the credit limit; one can tend to pile on the credit card debt leading to fatal cases if neglected.

  1. Venture capital

Commonly known as Angel investors, venture capitalists are the newbie in the segment for start ups. This is perhaps a great option that is completely based on the risk factor of being either the winner pr the loser with the business idea. Venture capital allows investors from outside to invest money in your start up. If one believes your business idea to have potential and visualizes success in your business plan, then he or she may be willing to put in his or her funds in setting up your start up. This is a fool proof method as you need not put in any funds and yet own a business.

Pros: zero investment to be made and no debts to pay off; no limit in the loan funds.

Cons: investors may demand for stakes or percentage in the business, thus sharing the profits earned from the business.

  1. Family or friend loan

When in doubt we head towards home or to someone we confide and trust in. this could be a family member or a close friend.  You can always choose to borrow money from your family or friends to set up your start up business. All you need is that someone willing to help you with financial aid. It is advisable to have a written document for the loan. You can also offer for a share in the business.

Pros: this is the cheapest form of loan that is also easy and convenient.

Cons: relations can get hampered in case you fail to return the borrowed sum of money.

  1. Crowd funding

Crowd funding is a concept of sharing your business idea with a large number of people, convincing them about the success of the plan and encouraging them to fund your dream project. This requires you to provide intricate details and research to a large number of people. You need to be very well prepared to answer all their doubts and queries in order to win their trust, earn their faith on your business and convince them to part with their money. Crowd funding can again begin with your family and friends.

Pros: no debts to pay off at all.

Cons: despite you putting in a lot of effort in developing and building a great business idea, you might not succeed in getting a crowd funding for the start up. It is an all-or-nothing opportunity; your business might not work despite you getting the funds, so all the efforts may go in vain.

  1. SBA loan

SBA business loans are generally meant for established business houses. But SBA loans are also available for businesses that are partially self-financed. So if you have a start up that you can fund up to 30 percent of the total amount you can opt for a SBA loan for the remaining funds. You are more likely to get the loan if you have substantially enough experience in the industry and business management.

Pros: comparatively low interest rates

Cons: lengthy loan procedure and longer time to get the loan amount sanctioned.

  1.  Loan from non profit

One can apply for a loan from non-profit investors who are willing to provide small sums of money for start up businesses. However, these organizations generally prefer to provide loans to ones who have a regular source of cash flow apart from the start up business in order to be able to pay back the interests. This is could mean a full paying job.

Pros: reasonable interest rates and no limits on the loan amount.

Cons: the loan takes a long time to gets approved and sanctioned.

Start up risk worth taking

For a start up, the main thing is the faith on the business idea and the urge to succeed the market. There is never really a correct time to begin with a start up. If you wish to do it just go ahead and do. In fact the market is believed to be far more conducive today with start up businesses having so many options to overcome financial crisis. The risk of failure and loss persists of course. But with landing funds being easily available to fuel a new venture, it is easier to take the plunge and work towards driving your dream project to success.

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