Even though the economy has slowed down, banks are still lending. So the question is: Should you borrow money for your startup? Only you can answer this question, but there are a few things to take into consideration before you make your decision:
1. Review your operating budget
Before you commit to borrowing and paying interest on any money, be sure you really need it. Go through your operating budget and fine tune it; cut costs if needed. Remember you’re paying extra for the money you borrow so everything you spend had better be worth it.
2. Talk to Your Family
If you can borrow money from your family, you’ll probably be a lot better off in the long run. Even if you have a legal written agreement and interest, you’ll get a much better rate and you’ll have some flexibility in case something really terrible and unforeseen comes up down the line.
3. Look for Investors
Not every business will have an investor waiting to jump at the chance to work with it; but if you’ve really got a great idea—something you know will turn the industry on its ear—then chances are pretty good that you can find someone with the cash to help you get started. The risk is limited because as long as you disclose the risks, you probably won’t have to pay back the initial investment if your business fails. However, the downside to having less risk is that you also have to work with your investors; and depending on the investor they may be either hands-off or want to be actively involved. So before you settle on an investor, be sure to discuss your working relationship and make sure you have a meeting of the minds about how the business will be run and what your respective roles should be.
4. You’d Better Shop Around
If you’re going to the bank or credit union for a loan, be sure you shop around. Don’t just go down to the same place where you have your checking account and fill out an application. True, it may take a couple weeks to go through and talk to different bankers, find out the terms of the different loans they offer, and read through their contracts. Don’t limit yourself to banks either, and look into alternative sources of financing, such as peer-to-peer lending, but in the long run it can save you thousands of dollars. It is well worth the effort.
5. Commit
Once you’ve borrowed money, you need to be prepared to commit yourself 110% to making it work. Simply having the money to make your business grow is only part of the battle (and a very small part, at that). Whether you like it or not, borrowing money places you in debt and that is a huge responsibility. Don’t be afraid—just do it!
How have you financed your startup? I’d love to hear about your loan selection process. What was it that made you settle on a particular loan over any others you considered?