GUEST BLOG: Why loans are a founding member to successful start-ups

By Rachael Everly, freelance writer

Loans have breathed life into many start-ups, especially those start-ups which were often written off by venture capitalist as not being ‘exciting enough’.

People often say that one should go for equity funding versus a loan. Equity has its advantages but it is important to remember that in 1984 the legendary Steve Jobs was fired from the very company he co-founded.

A start-up is often strapped for money, especially more so if you were one of the ambitious people who got out of college burdened with student loans and instead of getting a cushy job and going down the well-trodden safe path, rolled up your sleeves and bet everything on your idea.

Let us list the advantages of business loans:

• Applications for loans are easy to understand. Also if the amount of funding required is small to moderate – then chances are your loan application will be easily processed.
• In a traditional business loan a lender has no say in business decisions as long as repayments are being made on time.
• The lender’s association with the business ends at loan repayment.
• Interest paid is a tax-deductible expense.
• There are many places from where you can get a business loan. From traditional banks, to online lenders and P2P platforms.
• The ‘less traditional lenders’ have online request processual, meaning you get back an answer to your loan request in minutes or hours. No more waiting or making follow-up calls.

You’d be surprised how many opportunities there are for people with subpar credit ratings

To truly understand the importance and advantages of a business loan let us talk about the disadvantages of equity funding:

• Few investors are willing to invest in a start-up, especially more so if this is the first venture of the founder/s.
• You will have to sacrifice a part of the ownership to the investors.
• Decision making may be slowed down as equity funding means the investors get to voice their opinions too.
• Equity funding is complex and once obtained often leads to the necessity of setting up a company which details everyone’s roles and ownership. Also any profit earned will be taxed twice. First profit earned is taxed, and then the profit distributed as dividends is taxed.

DO I NEED A PERFECT CREDIT SCORE TO GET A SMALL BUSINESS LOAN?

In today’s environment, even if you have bad personal credit score due to past circumstances, you can still get a business loan and reverse your fortunes. You’d be surprised how many opportunities there are for people with subpar credit ratings.

Traditional banks usually have reservations about people with low credit ratings, but online lending ventures have truly shaken up the industry. If you can show them that you can generate a steady cash flow to pay off the repayments on time then you will most probably qualify for the loan.