Startup Money Matters: Borrow Instead Of Raising Equity

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October 26, 2016
Startup moneyExperts say that for startups borrowing is a much better option than raising equity.

You need money to get started and to take a course of action in order to execute your idea. Some raise equity while others look for a loan. Experts advise that you go for a loan even though it is more difficult. This is because a relationship with an equity investor will last all your life while lenders will not bother you after you pay them back.

Learn more about borrowing so that you understand why you should go for it instead.

Think About the Collateral

How much can you put up as collateral? If you can do 100%, it’d be great because borrowing would be much easier for you then. Collateral can actually be anything from business inventory, deposits, savings, to stock, home equity, etc. However, be very careful here because if you go this way and then your business goes into losses, the bank will have the right to take away your asset and then sell it to get back all its money.

B2B Company

B2B companies are considered more easily than B2C companies for loans because business-to-business companies are more likely to receive their payments on time once they create the invoice and send it over. That is not always the case with customers.

As a B2B company, you should go the ‘factoring’ way so that when you send the invoice you can factor it and be paid some advance while the invoice is being processed.

Franchise

Those who want to get started with a franchise need to register it in order to be able to get a loan with ease. SBA franchise registry should register your franchise and approve it so that you get the loan. Franchises that are not approved will face a lot of difficulty.

Do Not Buy Equipment

Leasing is a much better option because it is easier and you will be able to get a lease based on your personal credit. You won’t have to worry about anything else and once you are able to make purchases, you can start buying new equipment.

Raising money for a startup can be difficult but you don’t have to stress too much over it. It is much easier to borrow money than to look for an investor. You should only be clear about the above concepts.

Entrepreneurial Learning

Raise money for your startup smartly by going for loans rather than equity because the latter can be messy and full of hassle. Borrowing money from banks is a better option but you should know how to go through with it.

Image courtesy of [David Castillo Dominici] / FreeDigitalPhotos.net



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