Start-Up Loans: Top 5 Questions to Ask before Borrowing

Start-up loans for new businesses are more accessible today than they have been at any point since the start of the 2007/2008 financial crisis. Still, many new business owners can find themselves scratching their heads. They don’t know what to do, where to go, or even how to start the process of securing funding.

This lack of knowledge is the foundation for disaster if a new business owner does not get some direction. A good way to get that direction is to step back and ask some important questions. Asking them, and then finding out the answers, will quickly help the new business owner get his or her thoughts in order.

Here are the top questions to ask before applying for start-up loans:

1. How much money do I need?

This first question may seem self-evident, but it is surprising how many new business owners do not consider it as carefully as they should. Here’s the thing: start-up loans are intended to provide new businesses enough funding to get off the ground. The new business owner doesn’t know how much to borrow if he or she doesn’t know how much it will cost to get up and running.

2. What will I spend the money on?

Hand-in-hand with knowing how much money to borrow is knowing what the funds will be spent on. A brick-and-mortar start-up may need a tremendous amount of capital to cover investments in equipment and facilities. An online business might put most of the start-up funding into digital marketing.

The point is that business owners have to decide how they intend to invest their financial resources before they can make any realistic plans for borrowing. Not only that, lenders are most certainly going to want to know how start-up loan money will be spent.

3. How quickly do you need the money?

This question has made the list for one very simple reason: desperate people tend to make unwise decisions. If the idea for a new start-up is a good idea, it won’t hurt the new business owner to wait a few weeks to secure funding. Good ideas just don’t die that easily.

On the other hand, a new business owner desperate to get funding now before some wonderful opportunity slips away is probably looking at something that should be avoided. If an applicant cannot wait a little bit to get funding, he or she should probably just turn and walk away.

4. How quickly will I be able to repay the loans?

Start-up loans can be obtained as either short- or long-term instruments. The shorter the term, the higher the interest rate generally applied. The upside is that paying off the loan sooner will free the new business of that financial obligation.

The reality of short- and long-term funding dictates that the business owner realistically assess how long it will take to repay any and all loans. A business owner must also assess whether or not the business can survive long enough to make good on those loans.

5. What do my personal finances look like?

Banks and private lenders tend to be wary of new start-ups because such businesses do not have a track record to look at. As such, they have no choice but to look at the personal finances of loan applicants. New business owners need to take that into consideration. An applicant whose personal finances are messed up is going to have a difficult time obtaining start-up loans.

Securing funding for a start-up is not necessarily an easy process. It is not impossible either, but it does require quite a bit of thoughtful consideration and hard work. If you are thinking about applying for a start-up loan, step back and ask yourself these five questions first. How you answer them will dictate how you go about obtaining your funding.

The Tragedy of Trading Time For Money

In our twenties, we don’t tend to worry so much about trading our time for money, as we feel it’s a somewhat unlimited commodity but in truth, life is short and unpredictable and the time we have on earth is so precious, indeed, it’s our most valuable commodity yet we give it away, at times, as if it’s worthless.

The challenge with making more money, is that the conventional way is to trade a unit of time for a unit of money, and as we get older (i.e. more experienced) the amount we are able to charge for our money usually increases.  Yet, this is not based on something as linear as age or experience – it’s based on the value you can create a third party, that is willing to pay you in accordance to the value of that unit of time.

The inherent problem, however, is that no matter much you charge for a unit of your time – from the shop assistant being paid very little to the brain surgeon being paid highly, there’s a limit to how many hours there are in each day or week, meaning there’s an inherent cap to your earning potential.

That’s the ultimate problem when it comes to trading your time for money; there’s only so many hours upon which you can trade – and even the brain surgeon has a limit to how much he or she can charge for each unit of their time.

In the alternative, when you shift your mindset to that of the investor or entrepreneur, you activate the concept of leverage – meaning, you start to leverage assets and systems in order to generate revenue that isn’t contingent on the linear path of trading time for money.

We all know how that if we had invested in bitcoin, a few years ago, using a site such as https://buyandtradecrypto.com that we would now be sitting on a small fortune, yet it’s not just investing in stocks, trades, and currencies that can generate passive income for us… there are a whole heap of opportunities to create an income that doesn’t depend on you trading your time for money, you just need to find them, and the only way to do that is to shift your mindset from the linear focus of trading time for money as an employee (or even self employed business owner).

See, school doesn’t teach us to be wealthy, it teaches quite the opposite – to be a cog in the wheel and “get by” as a worker rather than to make it in life as an entrepreneur.  

The book “Rich Dad Poor Dad” by Robert Kiyosaki highlights some of the key differences between how the wealthy utilise their time and resources compared to those that are stuck on the treadmill known as the “rat race” where they are trapped trading their time for money.

The wealthy, on the other hand understand the need to take a longer term view and engage the principle of delayed gratification, in that they would prefer to invest in systems and strategies that are like fruit trees, eventually generating fruit in perpetuity, rather than the immediate term benefit of instant reward.

In summary, whilst trading time for money is not a “tragedy” per se, it is limited in terms of its ability to generate a good lifestyle whereas entrepreneurship and investing pave the way to a different financial destination.

Are You Unknowingly Sabotaging Your Credit Score? Here Are 7 Things That May Be Lowering It Without Your Even Knowing

The credit score that follows your spendings habits follows you for a long time. As BusinessInsider says, “It is used as an indication of trustworthiness by lenders, who use the number as a way to help predict how you’ll treat their credit line based on your financial history.”

That credit score can influence lenders when you apply for a car loan, a home mortgage, a favorable interest rate, and more. You must be making mistakes that affect your score, so are you unknowingly sabotaging your credit score?

Here are 7 things that may be lowering it without your even knowing:

  1. No credit balance. You’d think that having no outstanding balance would be a favorable thing. But, without credit cards, you have no credit background.

If you worry about running up credit card debt that would affect your credit score, you can apply for secured credit card. You must put down some money as collateral for a secured credit card, but it will be convenient for shopping and build a credit record.

  1. Charge-Offs. If you owe money on a credit card and have not made payments for some time, the credit card will decide on a “charge-off” because they have given up on your making your payments.

Your credit score will drop with a charge-off, and the balance after the charge-off remains part of your credit score data.

  1. Co-Signing Loans. When you co-sign a loan for a friend or family member, your credit history is at the mercy of their good payment habits. You would do better to urge them to consider a “bad credit” loan.

Lenders offer “bad credit” loans without the fuss, process, and delays at banks. These type of loans should be taken out only for emergencies. When considering high-interest loans, you must make sure if you can pay back the loan on time.

  1. Nuisance Bills. There are those bills you just don’t think about as debts. For instance, libraries are using credit collection agencies to close in on people who have ignored their late fees.

This is also true of unpaid medical bills and traffic tickets. Any evidence that you do not honor your obligations may affect your credit history.

  1. Credit Card Usage. It’s no surprise that your credit card debt affects the credit record. But, how you use the credit cards and don’t use credit cards can change your score, too.

It might surprise you that trying to rent a car without a credit card will prompt a credit check. And, each credit check affects your score negatively.

Are you unknowingly sabotaging your credit score?

Writing for Forbes, Lauren Gensler says, “You know your credit score is important, but are you clued in on what you might inadvertently be doing to sabotage it?”

Now, everyone has occasionally missed a payment, and most people have been late on payments from time to time. Some people are careless about their obligations, but some simply fall into a credit bind because of unforeseen circumstances and things beyond their control.

Having a low credit score does not mean the end of your world. You can improve it with focus and discipline. But, you should understand what can happen without your even knowing it.