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What is a startup loan?
A startup business loan allows entrepreneurs to finance and launch new business ventures. Like business accelerators and business incubators, startup loans are also useful for those in the early stages — of an already established company.
Startup loans — considerations
Startup loans for businesses can be both secured or unsecured. Secured loans require some form of collateral, while unsecured loans don’t. Due to not requiring collateral, unsecured loans can be more difficult to obtain and when you do get the funding — interest rates tend to be higher than with secured loans.
The Small and Medium Enterprises Development Agency of Nigeria, SMEDAN — can help startups with sourcing loans and other forms of finance.
How do startup loans work?
You typically fill out an online application form with a lender. You will provide information about your business, to enable the lender to better understand your personal situation — how much you need and the purpose of your loan.
Before assessing your eligibility, some lenders will ask for a business plan and cash flow forecast — as part of your application. As long as you sufficiently prove that you can afford the loan and that your business plan is sound — your loan should be approved. Sign the loan agreement and receive the funds in your bank account. Subsequently, you’ll begin making repayments over time — as per your credit agreement.
Benefits of startup loans
- You’ll have money to start a business
- You retain full ownership of your business
- You can build your business credit history
Limitations of startup loans
- Can be difficult to qualify for
- You might not know how to best use the money
- Your personal credit might be at risk
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