Debt (via a loan) is a great way to retain complete and total ownership of your company. Your ability to secure a loan for starting your business depends on several factors, including:
- your personal credit score (bad credit means a lower chance of receiving a loan!)
- the amount of collateral you have to back up the loan in case you default
- evidence that your business has the possibility of success (as shown by purchase orders, accounts receivable, commitment letters from prospective customers)
Typically, the first avenue for securing a loan to start your business is through leveraging your existing assets; for example, a home equity loan. This puts your living situation at risk, but often will be the source you need to convince other potential investors that you are committed to starting your business.
Another option is a Small Business Administration (SBA) loan. Many of the banks the SBA works with require collateral, but some do not. UT Federal Credit Union is a preferred provider of SBA loans in the Knoxville area.
Once your company begins to generate revenues and profits, Pathway Lending is a statewide provider of loans to small businesses that lack access to traditional bank financing.
Convertible debt also can be an option for companies that issue stock. This allows you to borrow money that can be converted to equity (shares of your company) at a future date.