
This interactive calculator allows you to provide inputs and see a full estimated repayment schedule to plan your capital needs and cash flow.
Many startup small business owners take pride in pulling themselves up by their bootstraps and not using financing to get their companies off the ground. But that approach can backfire, a new study in the Journal of Corporate Finance suggests.
The study, conducted by Florida Atlantic University faculty, assessed what happened to companies that took on debt during their first year of operation.
What’s more, they’re also more likely to achieve higher revenues.
Of course, this doesn’t mean you should run out and saddle yourself with a bunch of debt. But the study points out that for a startup, landing a business loan is somewhat of a litmus test. If you can persuade a banker to lend you their money, it’s a sign your business model has promise. In addition, once a banker has a vested interest in the success of your business, they will keep tabs on your progress and provide valuable advice.
Entrepreneurs in the study who used personal credit to finance startup were not as successful as those who got business loans. Worse, starting off using personal debt can leave you tapped out—and in that situation, no bank will give you a business loan.
You may wonder how to get a business loan when you’re a startup with no track record. In reality, you may need to put your personal credit on the line—but as soon as possible, you should build up your business credit rating to boost your chances of obtaining a business loan.
Successfully managing business debt as a startup is critical to your company’s future financial growth. The mentors at SCORE can help you map out a plan for improving your business credit rating and determining the best places to get the financing you need.
This interactive calculator allows you to provide inputs and see a full estimated repayment schedule to plan your capital needs and cash flow.
Copyright © 2023 SCORE Association, SCORE.org
Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.