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When you take out a loan to finance your startup business, you are borrowing money that you must pay back, with interest, to the person or financial institution that loaned you the money. That means regardless of the success or failure of your business, you have to pay that money interest back to the lender. If instead, you receive financing through investors, you have no obligation to pay back your investors exactly what they gave to you. Investors just share in the profits of the business if it succeeds, and lose money if the business fails.

On the other hand, the benefit of raising money through a loan is that you are still wholly the owner of the business, and you can keep any money you make that is not used to pay back the loan. When an investor gives you money, she is buying a part of your business and as such you must share your profits with her and somewhat tailor your policies and practices to her expectations.

What Will I Need to Pay when I Receive a Loan?

There are a couple factors you should consider when you are looking for a loan for your business:

What Assurance Must I Give a Lender?

You may need a cosigner or guarantor to sign for the loan as well. This is generally someone who has as good, if not better credit, than you. By making a person a cosigner or guarantor, you are making them also personally liable for the loan repayments being made on time and in full, so make sure you inform your cosigner of the consequences. The purpose of this is so that the lender has two people to collect from instead of one if the loan is not repaid in time in full, making the loan a safer bet for the lender.

Should I Consult a Finance Attorney when I Am Applying for a Loan?

The loan process can be rather complex process, especially since the laws regulating such a process vary so much from state to state. You may want to consult an experienced finance attorney who can advise you of your rights and be able to guide you through the loan application process as well as give you legal advice if you get into any financial trouble along the way.

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Last Modified: 08-12-2014 03:23 PM PDT

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