Start-up
business loans are offered to companies that are not yet established, but are
in need of financing. Also known as business start-up loans, these forms of
financing are awarded to small companies that are typically started by one
entrepreneur, or a group of entrepreneurs. These companies are held separate
from already established, yet small businesses.
A
start-up company is not established, it has no source of income, or a dedicated
following; it simply possesses an idea or premise off of which to earn income.
That being said, start-up business loans are similar to personal loans.
The bank or lending institution is not interested
in losing money–a loss is realized through loaning a risky company money.
Those companies that fail to earn an income or struggle with initiating a sound
business practice will be more likely to default on their loan payments than
established or well-to-do companies. If the business is too much of a risk-if
it fails in gathering enough income to pay off the loan or possesses a meager
credit history-the bank or lending institution will not offer them a small
business loan.
Since
a start-up business does not possess the established intangibles of a regular
company, the qualification process that goes into awarding a start-up business
loan is crucial. Additionally, the process is stringent because the vast
majority of start-up businesses fail within the first few years of initiation.
It is
unlikely that a lending institution will offer start-up business loans. The
prospect of receiving a loan from a bank is only awarded to companies that have
sound business plans, an enormous amount of capital, or who possess perfect
credit ratings. Even if such specifics are met, business start-up loans offered
by banks will be attached with a very high interest rate. As a result of a
bank’s unwillingness to finance start-up businesses, the majority of business
start-up loans are offered by family and friends of the entrepreneur.
