Many people on my business apps ask me about getting a small business loans. I tend to try to talk people out of it, but most of the time I can’t influence people too much. The reason for that is that everyone is an adult and those businesses are not my businesses. I can only suggest what I think. But people remain set on getting a loans. So for those people, I will cover how to get a business loan, the difference between getting a personal loan and applying it to your business vs. getting an actual business loan, and a few other details.
Banks do not loan to companies which have not started
Many people who are looking to start their business ask whether they can get a loan from a bank. Unfortunately, banks do not loan to businesses which have not started because banks do not tolerate risk. They like predictability. And it is nearly impossible to determine how a business which has not started will do in the future. Usually banks require two or more years of being in business and thousands of dollars in monthly revenue before they consider a company for a loan.
Possible options where you can get a small business loan
There are a number of options for getting a small loans which are sometimes call micro-loans of under $100,000. Some micro-loan companies are Kiva, Lendio and Prosper.
The way Lendio works is they match you with potential lenders according your credit history, business type, location, and a number of other factors. To get matched up to a possible business loan, all people need to do is fill out this form on Lendio and Lendio will get back to you with information about whether there is a lender with whom they can match you.
Prosper works by crowd-sourcing lending. For example, instead of finding a single lender who can lend thousands of dollars, they can get many lenders to loan you the money by getting a small sum from all the small lenders. Hence the term crowd-sourced funding. This is a popular new way to get a loan, but from my experience it is much easier to get a loan from Lendio because they actually do the work of matching people to a possible lender. Plus, Prosper has much stricter eligibility criteria.
Personal loans vs. Business loan
When people cannot get a business loan for their business, they can sometimes take out a personal loan and put that money towards starting their business. This is a possibility, but keep in mind. This increases your personal risk.
If you take out a business loan, and the business cannot pay it back, you are not personally liable for that loan. The business is liable. But if you take out a personal loan to apply to the business, they you are personally liable to pay back that loan.
If you are getting a personal loan that you will want to put towards your business, your credit score will matter. Here is a tutorial on how to get a business loan with bad credit.
Pros and cons of getting business loans
There are some strong opponents of getting business loans to fund your business. One of the loudest opponent is an investor named Marc Cuban. Marc suggests that since many businesses fail, most people will need to pay back the loan. So it is not any different than spending your own money. And people often take out much bigger loans than the money they can realistically lose. That causes many people to lose money that they could not afford to lose.
And of course, the advantage of being able to get a loan is that just like anything else, it is another weapon in your arsenal. And in some rare cases, it is the right tool. When people need a small amount of money that is perhaps under $20,000 they cannot easily get grants or investments for it. So a small loan that they can get quickly might be the right option for them. Of course they would need a way to pay that loan back, but nevertheless, having the option to be able to get a loan is a good option that is the right one in some cases.
Here is a tutorial that deals with the question of whether you should get a business loan to start your business.
Other Ways To Raise Money
Loans are not your only option. You can raise money by getting an investment, grants, donations, or being creative with your fundraising efforts. Here are some tutorials for other kinds of fundraising that you can try.
And here is a tutorial with some creative fundraising ideas.
How Much Money To Raise
Before you start raising money, you need to understand how much money you will need to raise. Creating a fundraising plan can help you understand how much money you need to raise. Here is a tutorial on how to know much money you need to raise.
And here is a tutorial for how to create a fundraising plan.
And here is a tutorial on how to create a cash flow statement and why it is needed.
Further Business Resources
be aleFor more business-starting resources, please take a look at our business planning mobile apps. Here is the iOS business plan app and here is the Android business plan app. Additionally, here is the iOS fundraising app. And here is the Android fundraising app. And here are our business apps on the Kindle. And here is an article where I give the argument that our Android apps are the best business apps on Android.
Author: Alex Genadinik