If you are running or planning to run a startup, the biggest challenge for you would be meeting the costs of operation and balancing them as you expand your business. Although you might be in need of funds, many financial institutions might not be willing to help you. If you feel you are in need of funds for your business, then a start up loan is the right choice. This loan permits a new company to borrow from lenders like other traditional loans.
Before applying for a business start up loan, you should be aware of its features and criteria. A list of generalised features for such loans is given below:
- Curriculum vitae
- Personal bank statements of the last few months (Number of months differs from lender to lender)
- Address proof
- Photo ID
- Assets and liability statement
- Cash flow statement
- Business Plan
- From 1-5 year period
- Applicable only for businesses that have been working for a certain time period (eg- maximum of 2 years)
The following are the ways in which a start up loan can help you:
#1 You Will Have Enough Money to Start Your Business
Initiating a business necessitates sufficient working capital to meet the early expenses like rent, payroll, equipment, inventory, etc. Based on your business’ industry, you may require more than your savings and the amount that your family and friends can lend.
In case your business is in need of a large investment initially, like equipment or inventory, a business start up loan may be one of the best ways to get these funds. This way, you will get the funds to start the business of your dreams.
#2 You Can Make Business Credit
Eventually, your business may require a large cash infusion to keep flourishing. When it grows, it aids in having a great record of responsible credit use. In the case of personal loans, a strong credit record depicts lower investment risk for the lender and reliability of the borrower.
By getting and repaying a small loan amount primarily, owners augment the chances of the approval for bigger loans for their business in the future. This may also help to keep intact the lower interest rates.
#3 Your Personal Wealth is Protected
A business start up loan can aid in separating the personal wealth of an individual from the finances of the business. Since every startup comes with risk, the most well-designed enterprise may face obstructions that are out of the owner’s control. Thus, one must think twice before pledging personal wealth like money required to live, retirement savings, and the equity on the home.
With a start up loan, one can initiate their business without engaging themselves in the risks of putting their own finances at stake.
#4 Your Ownership can be Retained
A business start up loan is an alternative way to look for investors, who may demand a share of equity in your business. By funding your enterprise through a loan, you get more scope while taking into consideration potential partnerships. For instance, instead of choosing investors on the basis of monetary value, you have the option of opting based on strategy.
Moreover, it is mandatory to note that investors may also have the authority to make decisions that are likely to affect the business directly. Hence, it is best to apply for a start up loan if you wish to control the business according to yourself completely.
#5 You Get to Choose Between Various Types
For your flexibility, you can choose between 4 different types of business start up loan in the UK. These are as follows:
- Online Lenders: Online lending is a new kind of business start up loan and has been gaining a lot of attention recently due to the ever-evolving internet. The following are its types:
Crowdfunding: Made for funding the small businesses, crowdfunding has surpassed private equity investments.
P2P (Peer-to-Peer) Lending: P2P enables individuals to borrow money from people online. This is especially helpful when they have been denied for any other bank loan.
- Bank Loans: Although these are used more by established companies as compared to start ups, bank loans are the most common type of financing business. Borrowing from a bank involves submitting financial history, documents and business plan. Therefore, it may consume a lot of time. In addition, to secure the loan, you will have to offer collateral. The following are the types:
Equipment Loan: This kind of business start up loan is one of the most used forms since it provides fast access to the equipment you require.
Business Line Credit: In this, you can borrow only the amount of money you need and have to repay only the amount that you use. Since this kind of business start up loan is unsecured, collateral may not be required.
- Government Start up Loans: You can apply for this loan online. It is a great option since there are not any early repayment fees or application fees.
- Credit Card Loans: If you already own a credit card or are eligible for one, you can use these for loans. This is one of the riskiest methods for getting a loan, therefore, you must be sure you will be able to repay. Also, ensure that your credit card has a low-interest rate.
It is mandatory to look for all your requirements and then choose the kind of loan that is the most suitable. This way, you will avoid any discrepancies and get the loan as per your desires. Always remember to check with your lender the interest rate, application fees and other additional fees that may come up. This will help you get an estimate of the amount you will have to pay at the end of the loan.