Is It a Good Idea to Take a Loan to Fund Your Start-up?
By TLB Contributing Financial Writer: Martin
Many entrepreneurs are usually faced with a dilemma, on whether to take a loan to finance their startups or seek other sources of financing. This emanates from the fact that the source of financing that an entrepreneur goes for at the early stages of the business can determine the success or failure of the business in the long run. After an evaluation of the different forms of financing that are available to an entrepreneur, we are of the view that it makes sense to use a loan in financing your startup. Here are 4 reasons why.
1. Speed of access to finance
For an entrepreneur looking to execute on an idea, speed is key. Any lags in implementation and the opportunity is gone! Unfortunately most sources of finance such as venture capital take time to come through, since investors want to carry out due diligence before committing money to your startup. With a loan, especially personal loans, such issues don’t exist. That’s because personal loans online are availed based on your credit score, which can be done in less than 24 hours, making them an excellent financing option for your startup.
2. You keep your equity
As a startup owner, you need as much control over the business as possible. This can allow you take control of its strategic direction, since you own the vision. Unfortunately, many financing options out there require you to give out equity to strangers who might not share your vision. That’s where loans become a source of strategic advantage to entrepreneurs. With a loan, you get to keep all the equity, while at the same time gaining access to the required finances to implement on it.
3. Small business loans come with tax advantages
In most jurisdictions, business loans are exempted from the taxes that the business has to repay. This can be a major boost to the business since the tax savings can be ploughed back into the business. Alternatively, you can use these tax benefits to clear your loan much faster, leaving the business with more cash flow balances to run its day-to-day operations.
4. They have flexible repayment options
Flexibility is one of the key factors that determine whether a startup will succeed or not. That’s why a loan is the perfect source of financing for startups considering that they have flexible repayment options depending on the needs of the business. For instance, when cash flows are inconsistent, the startup can choose to go with installment payment loans, and when the cash flows improve, it can opt for one-off repayment loans.
5. You build your credit score
As the startup grows and its cash flow needs increase, it will require a reliable credit partner at some point. That’s why starting early when the business is still new will help create a long-lasting partnership with lenders. The business can then use this as a source of strategic advantage, since it can always fill customer orders, no matter how large they are, with ease. This is something you can’t achieve with other financing options such as contributions from friends and family.
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