Key Business Loan Issues

When you start a business, you generally have two ways to raise capital: loans and equity contributions. There are some obvious disadvantages to loans. They require you, for example, to pay back the lender whether or not the business is successful, which is not the case with equity contributions. But the advantage of a typical loan is that if your business prospers, the lender is only entitled to an interest return on its loan — not a percentage of the profits or a share in the company that an investor would expect.

Whether you obtain loans from a bank, individuals, or other lenders, a number of variables can affect how good or how bad they are for your business. Virtually all of these variables are negotiable: There is no such thing as a “standard loan.” Be sure to negotiate key these issues if you plan to get a loan for your business:

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