Check Your Options Thoroughly When Looking For A Startup Loan

Online, July 17, 2011 (Newswire.com) - Every entrepreneur would love to have an endless supply of money with which to start his business. But the reality is that you have to prove your concept first before you can secure the funds you need in the form of a startup loan.

Most businesses require some sort of initial capital or startup loan for things like inventory, marketing, facilities, incorporation expenses and staffing. If they can't find the needed funding, or if poor money management is the case, the business will fail. Many businesses have closed their doors simply because their cash flow just didn't, well, flow.

When exploring your funding options, you must consider several factors. First, are your needs short- or long-term? How quickly can you pay back the loan or provide a return on the investment? Think about how soon you need the business loan also - do you need it now or in smaller portions over a period of time?

You must also consider whether the funds you seek will be used for operating expenses or for capital expenditures that will eventually become assets - things like equipment or real estate.

You must also consider whether you would be willing to assume the risk - all of it - if your business fails.

There are basically two types of startup loans: debt financing and equity financing. Debt financing is a loan in which you borrow the funds and agree to pay it back within a set amount of time at a set interest rate. You will own the money whether your business succeeds or fails.

Equity financing is where you sell partial ownership of your company in exchange for startup loan funds. The investors assume all or most of the risk, and if the company fails, they lose their money. But if the business is a success, they will get a great return on their investment. Because investors take on more risk, you can expect they will want to be much more involved in your company.