As the name suggests, a small business start up loan is money used to begin a new business. While the traditional place to go for one of these loans is to a bank or other financial institution, there are other options you can consider for a small business start up loan.
The following are three common methods of start-up funding that won’t necessarily involve banks:
Friends and Family: Friends and family members are one of the most common places to get a small business start up loan, but using them can have complications. Your personal relationships may be at risk if there is a problem on either side of the deal. If you use friends or family for a small business start-up loan, you need to handle it like a business transaction and put everything in writing. Handled properly, this can be a very simple way to get started.
Venture Capital: Venture capital is money offered by individuals or groups to be invested in a business. There are venture capital firms and some government entities that specialize in providing venture capital.
Private Investors: Private investors can be individuals or groups. Some investors prefer to be silent partners, while some will want a more direct connection to the management decisions being made in your small business. Understand what the ramifications will be before you accept an investment in your small business. An investor’s input can be very beneficial; in addition to funding they can offer guidance and some creative direction.
An SBA loan is a small business start up loan that is backed by the Small Business Administration. SBA does not provide these loans; rather, they are the guarantor of the loan. This means, in case of default, SBA subsidizes the provider. This makes the lending opportunity more attractive to a lender, but it also makes the qualifications more stringent than some other methods of funding.