You are correct. If you do this it needs to be a standard loan with a fixed interest rate. A ""loan"" that has any terms tied to investment performance would be fund management /investment business.
I am glad I inspired some discussion here. 2/20% model has only been introduced not so long ago and it seems it was not a good idea. Besides, now the average is 1.6/16.4% (figure I memorised from an article on the topic, can't remember where I read it though). Moreover, hedge funds like BlueCrest Capital have abandoned this model and now are basically a partnership trading only its partners' money. Companies like Commodities Corporation were also just that - a corporation, not a fund. So there is some rationale behind thinking of raising money as a company/partnership rather than a fund.
"There are a few exchanges where it is standard to raise up to about $1-2m (but not much more) with listing costs of maybe $30-50k." which exchange would that be? with such a low cost of entry and after that you still have to spend money on marketing your company IPO!