General Question

AlienBomber's avatar

I need financing to start my business. Should I get a small business loan or go through private sources?

Asked by AlienBomber (188points) February 13th, 2010

I am starting a business in June and I need to know wether or not it would be beneficial to get start up money in either of these ways.

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6 Answers

ETpro's avatar

If you have enough capital in hand to start without a loan, even if it means starting small, that would be my recommendation. If you start on borrowed capital, you must acheive profitability quickly to be able to carry the debt service, and that’s not always possible with a start-up business.

Right now, small business loans are tough to get, even for established businesses with a good credit record. So if you are going to need one, make sure you can actually get it before going too far with your planning.

sillymichelleyoung's avatar

We own a small business and trying to get any funding is very difficult even though we have excellent credit. As said about, make sure you have enough before you go too far.

Cruiser's avatar

Financing anything on the heels of a banking train wreck is a challenge at best. You will need a iron clad business plan to get any kind of backing from a bank. As far as borrowing money from private sources is sketchy as it may mean strings attached to the “loan” careful…very careful with these kind of deals as the may involve partners and the axiom I live by is the only good partner is a dead partner. Good luck!

thriftymaid's avatar

I would go the SBA route.

alamo's avatar

Borrowing money to start a business has lots of disadvantages. The money has a “cost”. The loan payment will have to be paid first every month. The interest and the principal directly impacts the bottom line, it reduces operating capital, profit and funds available for expansion. It also reduces your freedom and independence, two of the reasons some people start their own businesses.
When you borrow money, you give part ownership of your idea and labor to someone else.You have to ask them if you can do some things with your business and they may impose limits on what you can do with their money from the start. If you want to “buy them out”, you have to come up with all the money they lent you plus the interest you agreed to. You then give away/back that money instead of reinvesting in your idea and multiplying its value.
For example, if you borrow $20,000, when you have $20,000 of profit saved up in an account, should you pay off the loan or buy a company car? If you buy a car, you will reduce use and expense on the personal vehicle but still owe loan payment and interest.If you pay off the loan, you will spend more money on an older car that will need more repairs.
A loan to start a business directly influences many if not all of your day to day decisions with “your” business. If it’s at all possible, use your own money from the start,even if you have to start smaller or extend the time it takes to quit your current job and rely on your businesss to support you.Boot strap fianacing your business is tougher but better for the business short and long term, both financially and from a personal satisfaction level.

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