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If you’re looking for funding to get your start-up business off the ground, a bank loan may seem an obvious choice. The stricter bank lending criteria brought in following the global financial crash in 2007 can make them difficult to access, however.
Furthermore, bank loans aren’t known for their flexibility and there are no guarantees that they would meet your specific needs as a start-up, so it’s also worthwhile considering alternative funding options.
Lack of trading history and proof of creditworthiness can be barriers to borrowing at this early stage, so what type of bank loan might you be able to access as a new business and what are the potential alternatives to bank lending for start-ups?
The British Business Bank start-up loan initiative helps businesses that are struggling to access the finance they need. Loans are structured as unsecured personal loans, which means you don’t need to provide an asset as collateral.
As these are personal loans your own credit rating is taken into account when assessing eligibility. There are also implications if your business cannot afford to repay, as you become personally liable for full repayment in the event of default.
Specialist lender start-up loans
Specialist lenders are a good option when looking for a start-up business loan as they’re more flexible in their approach to eligibility than a high street bank. You can use the funds for a variety of purposes, including purchasing new assets or meeting payroll liabilities.
Factoring and invoice discounting
Invoice funding is a type of asset finance that uses the value locked within your sales ledger. Unpaid invoices can be a drain on cash flow but factoring and invoice discounting release around 90 per cent of this money, typically within 48 hours.
Start-up equipment finance
Spreading the cost of expensive equipment is key at this early stage of business, which is where equipment finance can help. A hire purchase arrangement may be suitable if you want to own the asset at the end of the contract, but equipment leasing also offers flexibility when the lease comes to an end.
Prepare detailed business and financial plans
To support your funding application you need to provide the lender with a comprehensive business plan, including cash flow and sales projections. Essentially, you’re trying to assist them in assessing their risk.
Consider your personal and business credit ratings
As a start-up business, you may not have built up a reliable credit rating. In this case, lenders will use your personal credit rating as one factor in assessing eligibility. You’ll typically need a good personal credit score before lenders will consider you for start-up business funding.
Search for lenders
UK Business Finance is one of the leading commercial finance brokers in the UK. We will find the best quotes from the whole of the market and can make applications on your behalf. Please get in touch with our experienced team get in touch with our experienced team to find out more and let us help you access the start-up funding you need.
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.