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What are the Different Types of Start up Business Loans?

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  • Written By: Kristie Lorette
  • Edited By: O. Wallace
  • Last Modified Date: 28 October 2016
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A new business requires funding for all of its start-up costs. Four primary sources of start up business loans include bank business loans, a business line of credit, business grants and money from private investors. Each one of the start up business loans offer options with advantages and disadvantages, so each option should be carefully weighed before choosing the one option or mixture of options that is best for the start up business.

The first option for financing the start up costs for a business is with a business loan. Entrepreneurs can obtain a business loan from banks or credit unions. To apply for a business loan for a start up organization, the applicant must write a business plan and submit it as part of the loan application. Business owners can start with a bank or credit union where a personal relationship has already been established, because it is difficult for a business without one to two years of history to receive approval for bank loan.

The second option for financing start up costs for a business is with a line of credit, which works similar to a credit card. A business line of credit is money that is available when it is needed. Interest is paid on the amount used and when it is paid down or paid off, the line is available for use again.

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Business grants are another source of funding for start up costs. While grant money does not need to be paid back, grants do not typically cover all costs. In this respect, the organization granting the money requires the entrepreneur to invest a portion of his or her own money to finance the start up of the business. Grants can be a highly cost effective way to supplementing the money needed to get the business off the ground.

Private investors are another source of start up business loans. They may be a personal or professional acquaintance, a family member or a stranger. A private investor is someone who has money to invest in a business. In exchange for providing the start up business loans needed, the private investor expects to receive a return, such as percentage of the sales of the business for a set period of time.

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