When people talk about starting a small business, loans come up almost immediately.
Banks, credit cards, and lenders often make it sound simple:
Borrow now, grow later.
I believed that too.
I’m writing this from real experience after starting a business and learning—sometimes the hard way—how debt changes everything. Taking a loan is not automatically a mistake, but it can quickly become one if the risks are not fully understood.
A big reason many people take on debt is because startup costs are higher than expected. I explained those costs in detail in How Much It Really Costs to Start a Small Food Business in California.
Why Many New Business Owners Take Loans
Starting a business requires money long before it becomes profitable.
Some of the most common reasons people borrow include:
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Purchasing equipment
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Paying rent and security deposits
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Covering permits and licenses
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Renovations and repairs
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Buying inventory and supplies
Very few people have enough cash saved to cover all of this, especially when buying an existing business. Borrowing often feels like the only realistic option.
Common Types of Loans People Consider
Most new business owners explore a mix of financing options, such as:
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Credit cards – quick access, but very high interest
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Personal loans – faster approval, but personal risk
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Traditional business loans – structured, but hard to qualify for
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Government-backed loans – lower rates, but long and complex
Each option comes with trade-offs that are not always explained clearly at the beginning.
Why Government-Backed Loans Don’t Work for Everyone
On paper, government-backed loans sound like the best option. They usually offer lower interest rates and longer repayment terms.
In reality, the process can be very long and complicated.
I personally went through this process, which involved extensive paperwork, long waiting periods, and repeated follow-ups. In the end, the experience mostly led to lists of potential lenders rather than actual funding.
One of the biggest challenges was business history. Even though I had purchased an existing restaurant, I did not have a long operating history under my own ownership. That made approval slow and uncertain.
When you are trying to keep a business moving forward, waiting months for a decision is often not realistic.
Why Some Owners Turn to Alternative Financing
Because of delays and limited approvals, many business owners look for faster alternatives.
In my case, I chose a form of financing that allowed me to move forward quickly but required strong personal guarantees. This made funding possible, but it also shifted a large amount of risk outside of the business itself.
These options can help when time is critical, but they often come with higher interest, stricter terms, and more personal pressure.
My Real Experience With Business Debt
I want to be honest here.
To start and keep the business running, I took on multiple loans using both personal and business credit. Over time, that debt grew into a six-figure amount.
The loans did not mean I failed.
But they made every mistake more expensive.
Monthly payments added stress, especially during slow periods, and limited flexibility when unexpected costs appeared. The debt didn’t create the problems—but it amplified them.
The Biggest Risk of Borrowing Too Early
The biggest mistake isn’t borrowing money.
It’s borrowing before the business is stable.
Loans come with:
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Fixed monthly payments
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Interest that compounds over time
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Pressure even when sales are low
Payments do not pause during slow months, emergencies, or learning curves. That pressure can affect decisions, focus, and long-term planning.
When Taking a Loan Can Make Sense
A loan can make sense if:
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You clearly understand your monthly cash flow
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Your sales expectations are realistic
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You have reduced unnecessary startup costs
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The loan supports growth, not just survival
Borrowing with a plan is very different from borrowing out of urgency or fear.
When Loans Become a Problem
Loans often become a problem when:
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Payments are too high for early revenue
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Sales take longer than expected
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Repairs or surprise expenses come up
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Multiple debts stack at the same time
At that point, the business starts working for the debt instead of the debt supporting the business.
What I Wish I Knew Before Borrowing
Looking back, I wish I had:
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Planned for longer slow periods
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Borrowed less at the beginning
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Better understood how interest compounds
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Focused more on cash flow than growth
Debt does not disappear when things get difficult—it becomes louder.
Final Thoughts
Taking a loan to start a small business is not automatically a mistake.
But it is one of the most serious decisions a business owner can make.
If you are considering borrowing, slow down, run the numbers, and be honest about the risks. A loan can help you move faster—but it can also make recovery much harder if things do not go as planned.
Disclaimer
This article is based on personal experience and is for educational purposes only. It is not financial advice.
