Entrepreneurs looking to start their own businesses or grow existing ones have many financing options. For many folks, self-funding just isn’t feasible, so they may consider taking out a loan. Luckily, there are plenty of lenders and financing tools to give you a helping hand. Here are five helpful benefits of receiving a start-up business loan.
Your Business Builds Credit
Credit works similarly for businesses as it does for individuals. When your business accrues debt when you take out a loan, your prompt repayments demonstrate that you are reliable and trustworthy. The higher your business’s credit score is, the more money your bank or credit union will be comfortable lending you in the future.
If you’re not sure about taking out a loan to start because you don’t want to go into debt, see what funds you may already have available. If you have a 401(k) retirement plan with your existing job, you can use those funds instead of taking out a loan. You’ll start your business without accruing debt right away.
You’ve Got Options
Business loans come in many forms, and you can choose the one that best fits your business’s goals. Working with the SBA (Small Business Administration) can garner you lower interest rates. Meanwhile, 401(k) small business financing allows you to roll over retirement funds from your existing 401(k) into a new one, helping you avoid taxes and withdrawal penalties.
You Can Start with a Clean Slate
Small business loans are great ways to hit the ground running with your business. If you’ve got good credit and confidence that you’ll be able to pay back the loan in a timely manner, a small business loan could be the way to go. However, if you’d like to finance your business without accruing debt, 401(k) business financing can help you use money you already have. You’ll start off without any hefty loan repayments, and your finances will be more flexible.
You Can Retain Control
When you look outside traditional methods to raise money for your business, you may reach out to venture capital firms or private investors. This path can help you raise money quickly, but you also sell off control of your company, a piece at a time. Instead, consider using money you’ve already got to create a new 401(k) program for your company. You can retain sole control without having to answer to a board of trustees.
You Can Separate Your Finances
Once you’ve officially incorporated your business under its own name, you can separate your business money from your personal money. Transferring the funds from an existing personal 401(k) into your new business 401(k) plan helps you avoid additional fees and taxes. Your business can begin to use the investment as working capital.
When you decide to start your own business, consider the financing options in front of you, from small business loans to 401(k) financing. Keep these benefits of receiving a start-up business loan in mind as you pore over your finances.