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Are business loans necessary to build a new business?

June 27th, 2013

stacks-hundred-dollar-billsGetting your customers to fund your business by buying things is still the best way to get capital. Nevertheless, many businesses seek venture financing or commercial loans to start or expand.

A group of entrepreneurs interviewed by loans.org, however, think it is unwise to borrow money to start a business.

Loans.org interviewed six entrepreneurs to discern just how vital or unnecessary borrowed financing was to launching their start-ups. The interviewed entrepreneurs were clearly divided.

To borrow or not to borrow?

One entrepreneur said that she bootstrapped her business and only dealt in cash. She believes that had she borrowed money, it wouldn’t have helped her become successful faster.

Another entrepreneur, Robert Smith, believes that anyone creative and persistent enough can run a business without borrowing money. He said that business debt creates additional stress in an entrepreneur’s life.

Smith, owner of Champion Media Worldwide, told loans.org, “We are programmed to think that we need financing and no one teaches how to grow organically with very little money.” He found strategic partnerships worked for his firm. “If you are creative and persistent enough, all businesses can run without financing,” said Smith.

On the other hand, others said that borrowing money can be very beneficial for businesses (not surprising from a study by loans.org, although it’s interesting that they include the other side of the coin as well).

Alternative financing choices

One used financing to hire and pay employees — saving him from dipping into his personal savings.

Another entrepreneur borrowed money from the SBA which led to his company growing to over $1 million in sales and creating six additional jobs.

Here at the TechJournal, we think businesses should also take a look at various alternative methods of financing, especially if they have decent revenues. Atlanta-based Kabbage, for instance, offers capital advances to qualifying businesses.

Also, angel investment groups may be a good way to go if your company needs $1 million or less – and now that many are looking a geographically dispersed larger deals, they may even step up to Series A levels of $1 million to $3 million. — Allan Maurer

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