How To Get a Small Business Loan Without Taking Too Much Personal Risk
So you’re thinking about getting a small business loan to fund your startup. There are quite a few steps to take before securing a loan - like preparing a business plan, expense sheet, and financial projections to start - but first you need to decide whether securing a loan is the right option for you. This may be the most important financial decision you’ll make as an entrepreneur, and you want to be sure your decision making is sound.
There are numerous options for funding your business. If you have the means, you may even be able to self-fund or bootstrap the business yourself or rely on revenue from early customers. If that’s not a viable option, you could raise venture capital from investors or financial institutions. If you’re looking to hold onto your company’s equity, crowdfunding might be an option for you instead. But the option that allows you to maintain the most control over your business (outside of bootstrapping) is securing a small business loan.
But debt is debt and you want to be sure a small business loan is a financial weight you can carry. There are some cons to getting a small business loan. Most notably, the fact that you may be required to personally guarantee the loan. This means that you may have to put up security in the form of your personal belongings, and if you fail to pay off the loan, you may end up not only losing your business, but also your house, vehicle, or other property.
Consider this possibility: Home is typically our sanctuary - where we feel most comfortable to be ourselves. Imagine if you personally guarantee a loan but your business fails and the bank chooses to repossess your house because of a missed payment. That will not only have an impact on your need for basic security, but also your personal wellbeing. Simply put, while small business loans give you more control over your business, they can also create more personal risk than other forms of fundraising.
Every financial option has positives and negatives. Whatever you decide, make sure it’s not only what’s best for your business, but what’s best for you as well. Adding debt to your business can create serious risk for your personal assets which can increase the stress you feel while building your company.
One of the most challenging aspects of becoming an entrepreneur is separating yourself from your business. Sometimes your identity can become so closely tied to your company that any business failure seems to become a personal failure. So, while it’s always critical to weigh the opportunities and costs of bringing financial partners into your business, it’s equally as important to learn how to do it while protecting your best interests and your identity outside of being a founder.
At Founders First, we’ve studied the importance of maintaining what we term “identity hours” as entrepreneurs. An identity hour is non-work time spent as a parent, sibling or friend, or perhaps on a personal activity like exercise, meditation or journaling. This time spent outside of the confines of entrepreneurship is integral in preserving your personal identity. Maintaining identity hours each day adds harmony to your schedule and contributes to a calmer mindstate, which in turn allows you to make better decisions, like whether getting a small business loan or any type of traditional financing is the right option for you.
You can learn more about maintaining your identity hours and even track how many you accumulate each day by using our mental health and performance grader. Plus, the provided accompanying tools include meditations, journaling prompts, and even yoga exercises - all ways to boost your identity hours through self-care if you’re having trouble making the time for yourself.
When it all comes down to it, make sure you’re in the right headspace to make key financial decisions. Whether you choose to get a small business loan or raise venture capital or maybe bootstrap the business yourself, consider that whatever you decide may add a personal weight in addition to the professional risk. Whichever you decide, make sure you can separate your identity as a human from that business decision.
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