As an entrepreneur ready to launch your own startup, figuring out financing is essential but tricky. Taking out a small business loan provides helpful capital upfront but also sizable risk. Before pursuing a loan, weigh the potential upsides and downsides:
Pros
- Fund growth projects like renting business space, purchasing equipment, hiring staff and stocking initial inventory. Things not feasible from personal savings alone.
- Retain full ownership and control over business direction compared to equity funding sources.
- Build business credit history which helps secure better loan terms in the future as the business matures.
Cons
- Accumulate considerable debt right out of the gates that takes consistent revenue to repay responsibly.
- Personally liable for the debt. If the business fails, you still must repay the loan amount.
- Pay interest costs that diminish profit margins in already lean early stages.
- Miss out on alternative funding options like crowd sourcing and grants.
Assess your particular business carefully – its needs, your existing resources and the realistic revenue projections – before pursuing a loan. Conservatively estimate loan repayment ability before talks with lenders. Some starter operations fare better beginning through bootstrapping methods.
For ventures like restaurants with large upfront equipment purchases, the influx of capital from loans may prove necessary. Just walk in clear-eyed about the obligation assumed!
Have you considered a small business loan or other financing for your startup? What factored into your decision making? Please share your perspective!