When considering taking out a loan, founders basically have two options: they can apply for a personal loan (to be used for the business) or they can apply for a business loan. There are several types of loans, depending on the size and circumstances of your business, that fall under those two categories.
Personal startup loans:
Many founders whose businesses have a limited operating history choose a personal loan to fund their business. This is the kind of loan LowestRates.ca can help you get. There are two categories of startup loans you can apply for.
Personal loans for business: In some cases, it may be possible to apply for a personal loan to use for your startup. This option is common among early-stage founders who have just launched their own company and have limited operating history, as well as sole proprietors (such as freelance writers, artists, bookkeepers, or home based business owners).
Using a personal loan for your startup business means that your personal finances will impact your chances of approval. Your credit score, income, outstanding debts and any previous bankruptcies will be taken into account. Lastly, your debt will be secured through your own personal assets. A personal startup loan can also be a good option for startups with few fixed assets (think real estate or pieces of equipment), such as an internet business.
Business credit card: Some founders choose to use a credit card to cover expenses when their companies are in the early stages. While this may be one of the easiest forms of credit to access during this time , it’s also important to be aware of the risks. For example, you may wind up paying higher interest rates than you would for a personal startup loan and your personal credit score could be impacted if your business falls on hard times.
Business loans for startups
Founders whose businesses are large enough to qualify may apply for a business loan rather than a personal loan. This means that the debt is insured through the businesses’ assets, building, equipment, and accounts receivables, for example..
Line of credit: A line of credit is one example of a business loan, which allows founders to borrow as much as they need whenever they want, up to a predetermined limit. A line of credit is secured by inventory and the company’s accounts receivable and banks can usually demand full repayment at any time.
Term business loan: Term loans are often designed to be given to the borrower in one lump sum and then repaid at regular (usually monthly) installments over a predetermined period of time. Term loans are usually used to finance fixed assets, such as factories, machinery, or equipment.
Working capital loan: Where a term loan deals with long-held assets, a working capital loan deals with the day-to-day. This type of loan can be used to fund the daily operations of the company, from inventory purchasing, to marketing, to producing web content about startup loans.