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The downside of a loan is that it will require a personal guarantee, which means you're personally liable to pay it back. If the business fails (or more specif

by trussi 15y ago

The downside of a loan is that it will require a personal guarantee, which means you're personally liable to pay it back. If the business fails (or more specifically the business is unable to make the loan payments and defaults on the loan), it will negatively affect your credit. Ruining your credit isn't as bad as most people make it out to be, especially if you're young and can endure 7 years with only paying cash for everything (it's a good lesson to learn young). Assuming your venture is successful, the huge upside to a loan is that it's the cheapest money you can possibly get. Even at something like a crazy 16% interest rate on hard money leg-breaker type loans, it's way cheaper than giving away 10-40% of your company to get VC money. The other upside to a loan is that you have WAY more flexibility in the direction of your company, especially in terms of exit timelines. Everybody (i.e. those in the VC bubble) bashes 'lifestyle' businesses, but it's hard to turn your nose up at $10-50K per month in passive income. With VC money, you are forced into pursuing very fast and hard growth which generally sucks (from a founder perspective). With a loan, you can grow nice and slow and comfortably or you can go balls to the wall...it's your choice. With that said, the absolute best investors are customers. Leave yourself a 35-50% financial buffer, but only borrow enough to get to profitability through revenue. If you can hit that magical moment, it's as close to nirvana as most of us will ever get. :)

noduerme 15y ago
I like this advice, a lot. My startup's not really a web startup -- per se -- it requires a lot of hardware, licenses, etc. All of which we're ready to get. If it were a simple web service I'd launch it now and just see what happened ;) Obviously, spending a lot on hardware and licenses up front means we need more than a trickle of customers to make it profitable, which in turn means we have to spend more on marketing. So what should be about $60k worth of annual fees for us turns into about $200k per year to pay the fees and draw the customers to make it worthwhile. There are...cheaper ways to start, but they hazard our safety and put us at greater risk. E.g. starting in a country where we can do this without a license. Or starting with cheaper hardware. Unfortunately, that's the nut of what we'd be talking about, to speak of investing in our customers and only spending enough to achieve profitability. (In theory, we could spend a few thousand and achieve profitability, but it wouldn't scale). Anyway, thanks for the ideas and input... it's the first truly positive view of loans I've heard as an option against VC, and it's something to think about.

by trussi 15y ago

noduerme 15y ago

I like this advice, a lot. My startup's not really a web startup -- per se -- it requires a lot of hardware, licenses, etc. All of which we're ready to get. If it were a simple web service I'd launch it now and just see what happened ;) Obviously, spending a lot on hardware and licenses up front means we need more than a trickle of customers to make it profitable, which in turn means we have to spend more on marketing. So what should be about $60k worth of annual fees for us turns into about $200k per year to pay the fees and draw the customers to make it worthwhile. There are...cheaper ways to start, but they hazard our safety and put us at greater risk. E.g. starting in a country where we can do this without a license. Or starting with cheaper hardware. Unfortunately, that's the nut of what we'd be talking about, to speak of investing in our customers and only spending enough to achieve profitability. (In theory, we could spend a few thousand and achieve profitability, but it wouldn't scale). Anyway, thanks for the ideas and input... it's the first truly positive view of loans I've heard as an option against VC, and it's something to think about.