Start Up Business Loans
Starting a new business always costs money and financing a start up business, one of the toughest challenges that a small company owner has to experience. You may have endless possibilities ahead and a solid business plan, but that’s not gonna give you the qualification to acquire a traditional loan. In fact, most financial institutions won’t lend money unless you’ve got a solid credit history. You’ve to prove your years’ old track records too. What you’re gonna do? Are you going to bury all the potentialities that you’ve dreamed of? Naah! Those are the traditional ways, but right now, there are several options to acquire start up business loans in the present time.
At present, several financial providers are there to help start-up business owners. You can acquire your desired loan services from them. But you’ll definitely prefer the best small business loans for startups that require minimal interests, aren’t you?
In this regard, we’ve gathered all the essential information and going to provide accordingly. So, let’s dive in!
Everything You Need to Know About Start Up Business Loans
Start up loans for new businesses are considered to be riskier as there are huge chances for which the owner may not repay the loan. You’re first in the business, and you don’t have any evidence to prove your future success story, right? So, why would anyone take the risk? But some enthusiast company believes that you’ll repay them within the given time. From them, you’ll definitely get the money to fulfill your dream, and that’s within a reasonable interest. Now, let’s see how you’ll get started with startup loans.
How to Get A Start Up Loan for Your Business?
You can simply search online and get a bunch of ideas of grants and startup loans. There is a wide range available on google and with adequate information about every scheme. Actually, the financial providers are trying to bring their services at your door. Isn’t that great? You can select one of the schemes that accurately suits your needs. But before you apply, you must show them a strong business plan and cash flow forecast. Hope you’ve got yours!!
How do Start Up Loans Work, and What are their uses?
There is a lot of usability for startup loans. First of all, you can use the money to boost your new business or finance it.
On the other hand, you can also use it for paying some business expenses, namely:
- Workplace rent
- Office furniture
- Marketing expenses and much more
With the advantage of this loan, you can eliminate future obstacles that can hamper the growth of your business. You can borrow the required amount of money from a business lender by agreeing to repay it, including some interest over a fixed time. Okay, now let’s see how to get started with it.
How to Get Started with A Start Up Loan?
In order to get started, you’ve to first understand the differences between debt and equity. Actually, these are the main two options of startup funding, so it’s crucial to learn about them.
Equity vs. Debt
Equity Investment is capital trade for the company’s ownership share. In this case, anyone can become an equity investor, your family members, or your friend anyone who is willing to invest some money. But they have to be a venture capitalist or an angel investor mainly.
Debt financing is the borrowing of a particular amount of money, which will be returned over a certain period of time. This means when you’re borrowing a certain amount of money from the lender, your company will be in debt. But equity financing is entirely opposite to it. Let’s see what other differences these two have! Generally, a lender will evaluate a company’s viability to ensure the chances of repaying the money. This is usually assessed through a company’s business plan and financial statements. But the case isn’t the same for startups and small businesses. As they’re new, they won’t have any financial statements or the required documents.
Still, there are many ways to fund your business. You can use your personal money or savings as an investment in your company. As you’ve got the full ownership of the company, there won’t be any risk. Thus, you’ll be free of debt. Yet, it’s not possible for every business owner. This is where startup loans come in. So, let’s see what types of business loans are available for your startup business.
Types of Business Startup Loans
Finding the best loans for your startup business can be a complicated task. That’s why it’s always recommended to seek good advice before diving in. According to the experts, there are four types of loans available for startup businesses. These are the following:
1.Credit Card Loans
Credit cards indicate that you’re already taking the bank’s service, which makes you eligible for taking a loan. But it’s a kinda risky process. It’s recommended for you to accept Credit Card Loans for startup business only if you’ve got enough money to repay them back.
Another crucial factor about credit card loans it the interest rates. You must ensure the lowest interest rate before taking any loans. Otherwise, you’ll have to pay a considerable amount of money at the end of the money which can bankrupt you.
Government Startup Loans
Do you know that the Government also offers business startup loans? Yes, they also help the enthusiast to achieve their goals. These are generally known as Government Grants. It’s an excellent option for startup business owners. They don’t require any application fees or any type of early repayment fees. Moreover, the small business gets mentoring and different kinds of support services, which are great for a startup business. Honestly, this type of service has way more benefits for startup businesses.
Apart from that, you can also check the official government websites to see what sort of business loans they are offering and how to acquire them. Then apply for them that accurately suits you. The loans are usually granted on some terms and policies. Let’s have a look at them.
- Your borrowable amount is between 500 to 25,000 euros
- At a fixed interest rate of 6% per year
- 1-5 years of Payback period
- You must have a perfect plan to start the business that follows the rules of your region, and that does not have a lifespan of more than one year.
- You must have evidence of your residing area, and your age must be 18 years or more.
A bank loan is a traditional way to finance a business. It’s a popular and more reliable form too. But the problem is that they prefer more established companies over the startups. Banks usually have selective screening criteria, and they perform all their works based on it. Borrowing money from the bank requires lots of time. As we’ve mentioned above, you’ve to show your business plan, financial history, and some essential documents based on their requirements. Bank loans are more secured than any other business loan out there. Due to that, you’ll also have to offer some collateral to them.
Even though they have strict screening criteria, bank loan offers monthly installments and a fixed interest rate. So, you’ll get the maximum security through every business transaction. In spite of all these screening and requirements, some of the banks are still available for providing loans to startups. This type of bank loans is categorized into two forms; these are:
Business Line Credit
A business credit line is a less stringent form of financing. This specific sector has greater benefits for start-up business owners. It allows the owners to borrow the amount of money they need and repay what they have used only. Isn’t that great?
This helps finance operating costs and encourages sluggish cash flows. They are an unsecured business line of credit for the startup, and that’s why there isn’t any need for collateral.
An equipment loan is another specialized sector for the startup business, especially for the entrepreneurs. Through this loan, you’ll be able to buy every equipment that can boost your work process. Suppose you need some essential equipment for your business, like coffee machines, production machinery or photocopier, but you don’t have enough money to buy them. As you’ve invested all your savings, there can be a great hassle to buy additional equipment.
In this case, you can use an equipment loan and borrow some money on monthly installments. If you were about to buy all these types of equipment, you might need a huge amount of money to pay for everything, and that can become an obstacle to the growth of your business. But when you’re using a loan, you can pay a little amount from your revenue and avoid the load. In fact, this type of loan can also be categorized as secured loans because the equipment is going to act as collateral. So, if you become unable to pay the loan in the future, they won’t be able to take anything else from your ownership. There won’t be any risk of what you and your business own.
Although online lenders are new in this field, they have gained a lot of attention. Let’s see what type of online lenders are out there for you.
Peer to Peer Lending
Well, this an interesting process of lending money. P2P (the short form of Peer-to-peer) avoids the middlemen and contacts directly with the individuals who require a loan. P2P establishes a connection between the individuals and the money lenders, and all these are done online. Thus, your possibilities of gaining a startup loan for your new business will extend to the fullest. Even though if you’re denied by the banks, you can acquire the required amount of money from the online money lenders. However, P2P lending has some disadvantages too. Most of the lenders claim higher interest rates compared to other loans, as there are lesser chances to get back the money from the borrower.
It’s actually a trendy option for funding small businesses and entrepreneurs. In the meantime, the concepts of crowdfunding have changed a lot in the UK. These changes and boosts are visible in the equity and investments too. That’s why investment deals have put their focus on the start-up and early-stage investment more than the late-stage investing. Sounds great for you, right?
There two key types of crowdfunding are available in the present time. These are equity crowdfunding and rewards-based crowdfunding. Seedrs, Funding Circle, Crowdcube, and ThinCats are the most popular equity crowdfunding sites nowadays. If you’re looking for equity crowdfunding, you can try’em out. On the other hand, Kickstarter, Crowdfundur.co.uk, Crowdshed, and Indiegogo are categorized as reward-based crowdfunding platforms. In exchange for tangible and intangible benefits, individuals or businesses are allowed to invest in a company or project through these platforms.
Secured / Unsecured Business Loans and Their Differences
Every loan is categorized into two basic platforms. These are secured business loans and unsecured business loans. No matter which loans you’re taking, they’re literally a part of these two. The main part that distinguishes between them is collateral. Maybe you’re familiar with collateral. Well, it’s actually an assent that is kept by the lenders as a guarantee that the loan will be repaid over this. If the borrower fails to repay the money, the lender can claim the collateral. Okay, now let’s make the concepts of these two loans clear through a discussion.
Secured Business Loans
It’s the most common type and popular business loan for startup business owners. Unlike others, this type of loan requires collateral to make the transaction more secured. So, if you’re going to take this loan, you’ve to guarantee the payment with collateral or your asset of a similar amount. This is how both the lender and borrower will be able to ensure a secured trade.
Unsecured Business Loans (Unsecured Business Line of Credits for Startup)
Unsecured business loans are completely alternative to the secured one. In comparison to the secured loans, it doesn’t require any collateral for the approval. This type of loan is perfect for borrowing a small amount of money for the welfare of your business-like credit car loans, equipment loans, etc. However, the interest rates of unsecured loans are relatively higher as the lender wants the maximum protection of their money. So, make sure to repay every installment in time, or you may have to pay a huge amount of money if the time extends.
The Key Differences Between Secured and Unsecured Business Loans
|Secured Business Loans||Unsecured Business Loans|
|1. Requires Collateral||1. Doesn’t require any Collateral
|2. Available with lowest interest rates||2. The interest rates are relatively higher|
|3. It can be taken a large or small amount of money according to the needs of the borrower.
|3. Suitable for a small amount of money only.|
|4. The payment term is longer||4. The payment time is shorter|
Loans or Grants Which One is Suitable for Startup Business?
Actually, both of these have their own benefits, but you need first to understand the facts that distinguish them. In fact, these two options stand at the front line for funding your newly started company. So, if you don’t have adequate knowledge about them, things can be a bit challenging. With this in mind, we’ve discussed all the essential facts below.
What is Loan?
The word loan is related to a kind of credit cycle where a certain amount of money is lent to the individuals in return for potential repayment of the given money. In some cases, the lender can add some interest to the given money, and the borrower is bound to repay the additional balance with the principal amount. We’ve discussed a lot about the loan and its sectors; you can read them out to get a clear idea. Anyway, there are many start up business loans out there. Its wide area ranges from government startup loans to different types of bank loans. Online lenders are also included in this specific sector. You can choose your preferable commercial loan from there.
What are Grants?
The best thing about business startup grants is that you won’t have to repay the money. Yes, you’ve heard that right without repaying anything, you can get some money for your startup business. This is the thing that differs grants from the loans. And frankly, it’ll be a great thing for your start-up business. If you’re living in the UK, then there are hundreds of government grants for you to lend money. The number is around 200 that is specially made for small businesses. Most of these grants are awarded to the small business owners to quick-start their business.
The particular purpose of government grant is to generate more scopes for jobs and boost the economy. Each of the grants has its own requirements, so it’s crucial to check’em out and acquire proper knowledge about them before applying any of them. In fact, acquiring a grant is a very lengthy process, and that requires a lot of time too. In addition to that, it’s quite competitive; there are thousands of business owners like you waiting for a grant.
That’s why it’s recommended to step ahead with a backup plan. In case, if you’re not selected, you can use that idea to start your business in another way. Grants are usually given for a particular reason and fulfilling some specific purposes of the company. This is why the usage of the fund is appropriately monitored based on the terms and conditions provided by the grant-awarding agency.
Are You Qualified for a Business Startup-Grant?
As always, you must have a steady business plan before starting to apply for grants. Additionally, you should have an estimated budget for your spending, which will clearly indicate what and how much money you’re going to spend.
Your Qualifications Are Evaluated by the Followings
- Type of Your Business (Partnership, Purpose, liabilities, etc.)
- Number of Employees
- Geographic Location
- Specific Reason of Taking Grant
- The Sector Wherein the Business Conducts
How to Apply for Start Up Business Grants?
Well, we’ve covered most of the things about start up business loans and how to acquire them. But without a clear discussion of start up business grants, things will be partially incomplete. You would definitely like to know more about this sector and how you can apply for grants. With this in mind, we’ve gathered some successful applying ideas for new business grants. Honestly, each scheme is different from another, and that’s what also distinguishes in their requirements. But if you can follow these ideas accordingly, you can acquire a grant with less hassle. So, without any delay, let’s dive in!
- Speak to the grant reward committee properly to determine the likelihood of making a successful application.
- Take the required amount of time if needed. You need to understand the purpose of this grant, why it’s being awarded, and what it seeks to be achieved. As an example: you may need to hire staff from a local community or increase the production of environmentally friendly products.
- These things will increase the possibilities to get the grant and make you stand out amidst others. Try to write your application as closely as possible to the required goals to acquire the best possible area of becoming successful.
- No matters where you apply, a strong business plan is a must-have item to achieve the desired funding. The case is also the same with the grants. The grant authority will obviously want to see a strong business plan and a good strategy to reach the goal. So, make sure to achieve that before applying.
- Some specific projects get the priority for business grants. Such as for purchasing IT equipment, broadband installations, and several other sectors like this. So, target these types of specific areas, express why you need them, and indicate how the growth of your business will become beneficial for others.
- Most funds will prefer your ability to invest. However, if you are applying for a £ 10,000 grant, ensure that you have sufficient funds in your hands (the same amount of the grant money, indeed).
- The chances of getting a grant will be at the highest peak if you can apply soon after the first launches of the scheme. Grants usually have a limited pot of money for the investment. So, the early you can apply, the more possibilities of getting a grant will be waiting ahead. In simple words, an early applicant has higher chances because of less competition.
Start Up Business Loans for Women
Women gained extraordinary progress during the past years. Despite that, they are still deprived of several important sectors compared to males. But the case isn’t the same for start-up loans for small businesses.
Several companies are out there to offer to start up business loans for women. However, the conditions may be a bit different compares to male entrepreneurs. So, you’ve to be specific about all the essential factors. In this case, make sure to read properly and make every point clear before selecting any of the funding options.
Business Startup Loans for Bad Credit
As we’ve mentioned above, your credit card bears the utmost importance to the lenders. In some cases, it’s the only asset based on which they are going to lend you the money. After all, you’ve just started the business; you won’t be able to show other documents. Your credit card must have a good rating because when you apply for a loan, the lender will evaluate your credit rating. This rating indicates how good or bad you are in business. So, you can either be viewed in a good light or in a negative way. Frankly, bad credit loans are available out there with different ways to boost the score of your credit card for an improved result.
300-850 is the actual range in which your credit card score is count. The higher you’ve scored, the better value you’ll get while seeking for loans. The score usually counts on several factors like timely invoice payments, overdrafts, and much more. On the contrary, some online lenders also provide bad credit card loans. This means there are still chances to get loans over the bad credit cards. In this platform, the business line of credit loans also plays a significant role.
If you’re having a bad credit card and want to improve its score for achieving the bad credit startup business loans guaranteed approval, then follow these simple steps.
- First of all, request a copy of your credit report
- Then look for the errors and if you got them correct them
- Make sure to pay the bills in time
- Keep the balance of your credit card in a lower amount
There are lots of information about start up business loans, and if we put all of them together, we can fill our next ten pages. That’s why we’ve selected some specific sectors and covered some of the best ideas for you. Hope these are going to be helpful for understanding all the facts clearly. If you’re still confused, then let’s know through the comment section. We’re always here to assist you.