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Business startup financing often comes with a catch

Securing startup capital is a major hurdle for entrepreneurs in Colorado, even when their plans seem sound and their ideas are good. High street banks follow strict underwriting guidelines that make borrowing a challenge for entrepreneurs who cannot provide a track record. Even loans guaranteed by the Small Business Administration can be difficult to qualify for unless the applicant has collateral to put up and an excellent credit history.

Personal savings, friends and family members are common sources of new business seed capital, but this type of borrowing involves taking on a different type of risk. If the commercial venture fails or does not perform as well as expected, entrepreneurs who have exhausted their savings or borrowed from loved ones could find themselves financially vulnerable or shunned. The online crowdfunding offered by websites like Kickstarter allows entrepreneurs to obtain startup funds from the general public, but the marketplace is crowded and ideas that are not newsworthy or novel may struggle to attract attention.

Venture capitalists and angel investors may be willing to take risks that conventional lenders would shy away from, but they will often expect an equity position in the new company in return. Angel investors could be the more attractive of the two options as they usually have industry experience and may prove to be valuable sources of advice and guidance as well as money.

Entrepreneurs who have been turned down by traditional banks sometimes seize the opportunity when alternative lenders are willing to extend credit. This can be an expensive mistake. Attorneys with business law experience could scrutinize the terms being offered by alternative lenders and draw attention to provisions that may become problematic in the future. Legal counsel could also identify legal issues that a new business could encounter and suggest ways to avoid or address them.

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