Let me be real up front with you….
A true business loan from a traditional bank for your startup will NEVER, please let me repeat even louder, NEVER happen. NEVER! So put your delusional mind aside.
Banks are not in the business of betting on long shots… of any kind. Even if you think you have found the idea that will turn a turd into fresh drinking water, there is simply no way a traditional bank will bet on you; that’s not what they do. They make informed business decisions on seemingly credit worthy borrowers and even then, they are still skittish because life interferes with even solid credit borrowers with tons of money. That means bad things happen to good people sometimes, or good people get greedy, or stupid, or careless…
You feel me, right?
Here’s the skinny… it is always best to get money from your parents, relatives, your savings, or your friends… if those are an option. They won’t expect (errr, take) much of your company because they believe in you and the novelty of what you are doing. Simple as that. Yup, Daddy’s greenbacks, like when you were a kid, still rules.
It is a massive advantage to you, the founder, no matter how crafty you are, no matter how good your pitch is, for someone to give you even one penny for your idea. Because that’s just it, an idea and nothing more. The key to your idea will be your ability to execute and be extremely smart (efficient) with their money. Execution is difficult and takes people, money, and time. Making your investors’ money go a long way is a gift; some people have it, others… not so much.
So, here are the advantages of business loans for startups:
- You are really frickin’ lucky you have money
- You can attempt to grow
- It gives you time until you need money… again!
- You survive another day
Now, the disadvantages:
- You will own less of your company
- Others’ opinions now matter (they have a say)
Since you now realize a bank will never give you money for your startup, you must realize that by accepting money for your startup, you will give a portion of the company away. You will have to do this multiple times and, if the valuations of your company are not big enough, each time you will own less and less of the company. That stinks, but it is a reality. This is why you must be careful when accepting other people’s money and why you must efficiently use every cent you take.
And then there is what I have termed the “Hollywood Syndrome.” Hollywood, you say? Hollywood is a place where people go to become movie stars. We always hear stories of the kid who was eating Top Ramen and down to his last dime when he booked that national commercial or the pilot that then went on to run for seven years straight. “Hollywood” because it is not real i.e. we never hear about the thousands of boys and girls, men and women, who tucked their tails between their legs and went back home because they didn’t make it. Sad to say but those stories are way more prevalent than the former; I know because I am one of them.
The startup world similarly has the “Hollywood Syndrome.” Those startups that crap their proverbial pants and implode, or peter out, or close their doors, because there is no more funding. It happens all the time on a daily basis. You just never hear about these stories because, like in the real Hollywood, they simply are not sexy. No one wants to hear the story about the loser…
… except me.
The disadvantages of getting any kind of business loan for your startup are few. Sure, you’ll have less ownership of your company but you’ll have money for another day, or, as I like to say, a fighting chance.
Take the money and use it wisely.