What are Business Start up Loans?

What are Business Start up Loans?

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What are Business Start up Loans?

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.

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