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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.
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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.
Can I use property as security for a business loan?
Secured business loans require one or more assets to be put forward as collateral. This protects the lender from financial loss if a company cannot afford to keep up with the repayments at any stage.
Does my company have a credit score and how can I improve it?
Limited companies do have credit scores and they’re used for a similar purpose as individual credit ratings. Lenders use them as a guide to creditworthiness, but a business credit score is also useful for suppliers and investors to gain insight into your company’s financial situation.
What is bad debt and how can I protect my company?
Bad debt presents an insidious threat to the financial stability of your business. It places strain on your working capital and creates uncertainty in paying your bills, but this can be addressed successfully if you take proactive steps to protect your company.
What is the difference between open and closed bridging loans?
Bridging loans are short-term forms of secured finance that literally ‘bridge’ a gap between funds going out of a business and monies coming in.