How Start-up Capital Works

Getting a Business Loan

If you decide to get a business loan from a bank or other lending institution, there are several things to consider. Start by asking yourself these questions:

  1. For what, exactly, is the loan going to be used?
  2. What length should the loan be?
  3. What assets can you use as collateral?

When answering these questions, especially the first one, be specific. Are you going to buy a building with the loan? Are you going to use it to purchase parts for an order you will fill within six months? You need to think through these things because you want to make sure you get a loan that fits the use of the money. For instance, you don't want to finance supplies for 15 years if you'll be using them up within six months, and you wouldn't want to finance your building or a large piece of equipment with a one-year loan. Make sure your loan type and length fits what you're using the funds for so you're not paying interest on widget parts that are now long gone.

Next, we'll look at ways to help your chances of landing the loan.