Research shows personal loans don’t help startups in the long run

Tatyana Sokolyk, Associate Professor of Finance at Brock’s Goodman School of Business. Brock University photo

Brock University press release – One of the first things entrepreneurs worry about is how to secure funding for their business ideas. Some go the traditional route and borrow from a bank, while others look to personal credit cards or loans from family and friends.

However, new research from Brock University shows that the type of loan goes a long way in predicting a new startup’s success.

In the first research study of its kind, Tatyana Sokolyk, Associate Professor of Finance at Brock’s Goodman School of Business, along with her co-author, Professor Rebel Cole from Florida Atlantic University, studied the financial performance of more than 4,000 startups to find out which type of loan was most closely related to the company’s success.

They found companies that secure business loans in the company’s name generate more than four times the revenue than those which fund their business by personal debt.

“We teach that it is critical for companies to have access to financial capital while they focus on building their venture, but until now, the research in this area had not differentiated capital types,” Sokolyk says.

“Banks choose what startups to extend loans to, and their due diligence and monitoring can help the startups to be more successful, but only where the entrepreneur has taken the time to apply for a business loan.”



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