Start-Up Loan Key Terms

Understand the vocabulary of start-up loans before signing any papers

Not all new business owners have the start-up capital necessary to get their business off the ground. In most cases, they'll look for outside help in the form of start-up loans or grants. There are many different types of funding available to new business owners, but if you're looking for funding, it's important to know what's involved. For example, you may be looking for an unsecured loan, but find that all lenders require some type of collateral. Make sure to research all of your funding options.

 

SBA loan

The Small Business Administration, a government agency, acts as a guarantor on SBA loans. This makes private lenders more likely to offer loans to new business owners, which is often a risky endeavor. You can apply for an SBA loan directly through your bank.
Try: There are different types of SBA loans. The Basic 7(a) Program allows business owners to get funding from a commercial lender. The CDC/504 loans are for Certified Development Companies, and funding from these loans should help a community at large.

Collateral

Because lending money to a new business is risky, many lenders prefer a business owner to offer some type of collateral. Collateral is insurance against the cost of the loan. If the business owner doesn't repay the money, the lender can repossess the collateral in lieu of payment.
Try: American Chronicle discusses the types of things that businesses can use as collateral, such as real estate, equipment and inventory.

Unsecured loan

With an unsecured loan, the business owner does not have to provide any collateral. Lenders base the loan decision on the owner's credit score and business plan.
Try: Direct Lending Solutions offers unsecured loans and a description of what they are.

Line of credit

A line of credit allows business owners to get the money they need, but it is slightly different from a loan. In a line of credit, the lender approves the business owner for a loan up to a certain amount. However, the business owner does not have to use the full amount and only pays interest on the amount that he or she uses.
Try: To learn more about  lines of credit and the advantages they offer, visit BusinessFinance.com.

Angel investors and venture capitalists

Angel investors and venture capitalists are another way that business owners can get start-up funding. This is a good place to look if your business requires millions of dollars. Both require a percentage ownership in the company in order to offer funding. The difference is that angel investors are often individuals, while venture capitalists usually have to answer to a pool of investors.
Try: The Ladies Who Launch have a good description of the differences between the two types of investors.

Early-stage funding

Early-stage funding is for businesses that are just starting up, while late-stage funding occurs when the business is more established. People sometimes refer to early-stage funding as seed-stage funding. Lenders may be more likely to offer late- stage funding because it's less risky for them.
Try: Garage Technology Ventures specializes in early-stage funding and describes what it is, as well as what it looks for in companies that apply for it.

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