Man and woman shaking hands over coffee

To Get a Loan, or Not – That Is The Question

Don’t dock me for the cheesy title, you know it works. One of the biggest issues with taking your business to the next level is funding. Investors have turned their noses up (much like they did to Steve Jobs, and the original publishers who Rowling submitted to are still crying a river), and you’re planning on funding it yourself and growing at a slower rate, but keeping it steady. Slow and steady wins the race for a reason, you know—there’s nothing wrong with playing it safe, especially when you’ve got a family to feed, and a lifestyle to maintain.

 

But you don’t have the cash, so you need a loan. You don’t want to be locked-in to a loan, so you pay yourself. My head’s spinning just writing about it, so let’s look at a few pros and cons of doing it on your own, versus going through the bank and getting a loan to fund your venture.

 

Funding It Yourself

 You’ve been tucking away capital, or you’ve been using your own personal profits and rolling them in your account. You’ve been eating Ramen noodles every day and you haven’t bought a latte in a year—at least you have your shit together. Going at it on your own has its perks, and it’s drawbacks, mainly being…

 

Pros

It goes well, and you did great—fortunately for you, your likelihood of getting an SBA loan or credit union loan in the future has tripled. Your business is making money, and they love seeing you put your own cash, especially large amounts, into your business. Not only that but if you’re happy with where it’s scaled to, you don’t owe anything to anybody. The success is yours; the profits are yours.

 

Cons

There’s no loan insurance. No way to bail yourself out. You can’t pay back a loan because it simply doesn’t exist. There are a lot of failed business ventures (mostly restaurants) where the owner ends up working two jobs when it goes down in flames—one to live off of (yeah, you’re still going to be eating Ramen every night) and one to pay back the loan. You have zero umbrellas.

 

Getting a Loan

You either qualify for an SBA loan, or you’re able to get one through your local bank or credit union. Either is fine. But what are the terms and conditions? It’s not like the Apple Updates page, where we just click the little box, ignore the ever-accruing list of terms, and skip on our merry way—this is a big deal.

 

Pros

Even if you’re going for a microloan for a small one-man army shop, you’ll still be able to qualify, so long as you have some collateral and you can show your lenders that you’re making money. It’s actually fairly simple, so long as you’re not a fresh-out-of-the-gates business.

 

Cons

The higher you scale, the more you have to give as collateral. This can be in the form of a real estate piece, inventory, or anything that’s going to be worth money to these guys. It gets slippery, and you could be risking it all.

 

Resource To Manage Your Money Either Way

We’ve loved this excellent resource by Rachel Richards to get into the financial mindset, no matter which angle you choose.