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Can you get a bank loan as a start-up business?

PUBLISHED ON: 14/08/2023

How can I raise funding for my start-up business?

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?

British Business Bank start-up loans

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.

Are there alternatives to bank loans for start-ups?

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.

Applying for start-up business funding

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.

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