Is Startup Funding Financing Your Business Dream...Or NIGHTMARE?

Think you want an SBA 7(a) Small Business Loan? If so, then read the fine print!

Many aspiring entrepreneurs that I meet believe that SBA provides startup founders with “cheap” loans and will simply “forgive” these loans if their business fails. Ummm…No. 

These loans are NOT given by the Small Business Administration. They’re NOT cheap, and they’re NOT easily “forgiven.” 

This is how they work. You and your company are reviewed in detail by the SBA. If they have confidence in your company’s potential success and…more importantly…your ability to pay back the loan, then they will guarantee up to 75% of the loan value. Now, the banks who are still at risk for 25% of your loan value will evaluate your loan application for an SBA-guaranteed loan. 

SBA charges you a fee up to 3.75% of their guaranteed amount at settlement. 

The bank sets the interest based upon your credit worthiness and the robustness of your company. However, they cannot exceed the SBA maximum limit of 13.0%.  If you do the math, then this loan isn’t nearly as cheap as advertised or believed.

In some cases, a good credit card may rival your SBA loan fees and interest!

And, should you not be able to pay the loan, the SBA will cover their guaranteed amount to the bank. YOU STILL OWE THE FULL AMOUNT. 

However, in some cases, the SBA will settle for a negotiated, lesser amount...but are you willing to bet your house on it? An SBA loan is not free or even cheap money.

Venture capital isn’t as viable or helpful as you may think.

Venture capital funding is RARELY an option for first-time entrepreneurs. In fact, without proven startup experience, most VC firms won’t even talk with you. Even if you’re an experienced and proven entrepreneur, venture funding should be a last resort. Why? 

There are some serious strings attached with bringing on investors or, should I say, your new partners and bosses.  

To obtain venture funding, you are selling part of your company to investors who may have completely different goals than you have. And you must fully understand that they usually don’t make any money until there is a liquidity event, such as an acquisition, and this simple fact drives all their decision-making. To cash in, your new co-owners will likely want to jump off the bus as soon as possible. 

Even worse, their dollars have bought your new co-owners visibility into everything that you do. Instead of making the call yourself, decisions are now group decisions where politics frequently play a role. If you get a bad VC firm, it’s like making a deal with the devil.    

Business loans, venture funding and investors cost you in interest, equity and control of your company. 

The key to entrepreneurial successful is staying in the race long enough for success to occur. 

Success RARELY happens fast. Being a successful entrepreneur is like being a marathon runner. You must pace yourself for the long run to find success. Debt and venture funding turn your entrepreneurial race into a sprint. This pace is unsustainable if you don’t immediately find success. 

With debt...your entrepreneurial journey is now on your debt owner or investors’ pace…not yours. 

Government Contracting Academy has a different philosophy and encourages our clients to bootstrap their startups and avoid falling into the debt trap. 

By launching a Federal Government contracting company from home on a shoestring budget while keeping your “day job” and steady income, you can FINISH the entrepreneurial marathon to find success.

When you financially pace your entrepreneurial journey, the pursuit of your dreams remains in your control…and not with a bank or venture capital firm.