What is a start-up loan?
A business loan is borrowed monies that businesses apply toward expenses that they are not able to pay for themselves. Some business owners put borrowed money toward office supplies, inventory or other business projects. Financial lenders want to know how the business intends to use the borrowed funds so business owners must make sure to have a clear outline for how the money will be spent. One specific type of loan is the start-up loan.
This form of loan is what a would-be business owner would want at the start of his new business. The funds can literally be used to “start up’ the business. In addition, the funds can also be used to pay employees and other expenses during the first few years of the business’ life when profits may not be plentiful. The advantages to this type of loan are numerous. The borrower gets to see his business idea become a reality, there is no concern regarding business debts or payroll during the start up, the loan buys the owner time to get things organized and the owner need not feel quite as much pressure to immediately turn a profit.
There are also drawbacks to this type of loan as well. If the owner’s idea quickly becomes no longer viable in the real world and the business fails, the owner is more in debt than he/she would have been without the loan. The loan may possibly make the novice owner feel too secure and said owner could possibly take actions that could adversely influence the business—for example the owner could buy more inventory than he/she can sell or simply not push enough to make a profit. Start-up loans can make a major difference in the life of any business.
(Images courtesy of SouthForkFunding and LindaOnLending)