Is it Good Idea to Start a Business with a Loan?

Starting your own business is an amazing adventure, but it certainly has it’s hidden dangers that come with it. For starters, you’ll have to be able to survive the first couple of months before you turn a profit, and exactly these early stages are what kill most new ventures.

According to Opportunity Business Loans, you can avoid filing for bankruptcy by eliminating non-essential expenses and reducing the cost of labor, but what if you started properly and had enough capital to allow for your business to flourish?

While many naysayers will be quick to say “no” to the idea of starting a business on a loan, using the bank to finance your venture can be a good thing. And no, Mark Cuban, you’re not always right that only inexperienced people start businesses with bank loans.

What if you have an amazing idea that outweighs the debt?

Just because you’ll have to take out fifteen thousand dollars to start, it doesn’t mean that you won’t recoup your investment in the next three months and even turn a profit.

It all comes down to you understanding your idea and doing proper market research. Is your idea good enough? Do you have competitors? Can you make it work?

Taking out a loan to start something that has a pretty good chance of returning your investment isn’t something unknown and experienced entrepreneurs have been doing it for years. If you’re savvy enough you’re essentially using someone else’s cash (the bank) to start your business and returning it all back in just a couple of months or a year.

But keep in mind that you can grossly underestimate the cost of your initial investment, so make sure to carefully run the numbers. Twice if you have to.

Because being under-capitalized isn’t something you want to happen to you…

But you can still come to the point where you’re undercapitalized. According to INC, it doesn’t matter that you’re running your business as best as you can, or that you’re growing really fast. Once you’re out of money there’s very little you can do.

And taking a loan can help you minimize the chance of you ending without any cash. It creates a sort of buffer zone where you can spend two or three months without making profit.

And profit should soon follow.

Truth is, the lender wants you to succeed in your business. That’s how they get their money back and that’s how profitable partnerships are formed.

Taking out a loan to finance your venture is a great way to allow some breathing space for yourself. As we said above, it provides a buffer zone between the period of starting and turning an actual profit.

So, should you start a business with a loan?

If you believe in the idea and you know it can turn a profit, then yes. Do it by all means. But don’t forget the hard work, immense pressure and late hours that come with running your own venture. Money is only 25% of the equation and you can’t take a loan big enough to build the business that you want.