I just received approval for a loan for my startup. I was approved for more than I need. Should I take more?

The loan will pay for the rest of software I'm building that will automate the deployment of my SaaS platform. This cuts my development time for each new client down by 95% - making me scalable. In a few months I will have it in my hands ready to open up my marketing activity now that I can deliver much more rapidly. It's tempting to use some loan money for marketing activity. Full disclosure, I don't know how to approach marketing yet.


Generally speaking - having access to more capital is a good thing - particularly when you aren't hemorrhaging equity to get access. Have you talked to the bank about closing on your "need" amount, and having them convert the remainder into a line of credit?

Beyond that - this really comes down to a few loan terms, and some math.

How does it impact the payment? Are you comfortable with the payment on the higher amount? How does it change your break even point at the cash flow level?

Are there prepayment - early payment penalties? If so, are they worth the additional capital in the event you don't utilize it and want to pay it down?

How is the loan interest calculated? Is it simple interest or amortized? In the case that its simple interest, you'll pay that interest regardless, because its rolled into the loan from the start.

In any event - best of luck with the upcoming launch and solving the marketing challenge! Happy to help you dig into that further!

Ryan Rutan

Answered 7 years ago

Honestly, bank loans are the cheapest capital you'll ever get in your startup and while the cashflow burden of paying them back is a bitch, the small % interest rate is far more favourable than the equity cost of an investor.

Also, having the loan repayments factored into your business plan will enforce good practices and targets. Planning to bootstrap is the best bet (i.e. making enough sales to pay back the loan, and pay salaries), as then you'll have the *option* of whether to raise any angel/venture capital rather than having it forced upon you.

In my first two startups, I launched the businesses entirely on commercial debt. In my 4th (and current) I've used a mixture of investment and loans. Happy to talk further about both scenarios.

Answered 7 years ago

There are two views here:

1. take the money whilst you can get it because it's not easy to get
2. only take what you need because you're likely to spend it even if you don't need it

There is no 'right' answer. It comes down to how much you trust yourself to make use of the money, it's likely you will always need more than you think.

Some questions to ask yourself:

1. Could I raise the money later when I need it?
2. Will taking the extra money now give me a significant advantage? What extra edge will it give? Is that worth it?
3. is the size of the extra cash so much that it would add extra burden to repayment?
4. Would the extra loan mark you down if/when you go for investment?

Hope that helps. Happy to discuss on a call.

Answered 7 years ago

Take the money. But, try to look at this as short-term/current financing which basically means that you should pay it off within a year. You probably will not, but make that your goal.

Secondly, during this year focus on Long Term financing through other investing in your business. Replace the short-term financing with the long term money if you can get enough of it, but be clear with your investors about your intentions.

Best of Luck,
From the Trenches to the Towers Marketing

Answered 7 years ago

Simple answer, YES ... with one proviso. Cutting development time by 95% makes additional cash very attractive. On the flip side, too much money too soon can make you sloppy and wasteful ... so find one or two competent people to hold you accountable and don'r spend a discretionary cent without their prior approval. Have you tested your market yet? If not, you may simply be digging a deeper debt hole. Watch out! Check your market!

Answered 7 years ago

Analyse your need, if u really need such increased fund. will iot have more financial burden on you. make budget, execute some analysis tools and the decide.
for more follow up, i am just a call away


Answered 7 years ago

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