If you are planning to begin with a business but do not have the
money to start, you can go for a start up business loan. This will aid you in paying the expenses
related to equipment, furnishing, new inventory and business location. Various
institutions like credit unions and banks lend for such loans.
In addition,
investing in a start up using your money can be risky. Therefore, borrowing
money in the form of start up loans is the best way. If you are still not sure
whether you want to go for this loan, read the article to know its positive
effects. By the end, you will surely be convinced to go for it.
What is a Start up Loan?
A government-backed personal loan that is available to aspirers of
starting or scaling a business is referred to as the start up loan. The amount
of loans usually ranges between £1,000 and £150,000 however, varies from lender
to lender. The term of the loan is generally from 1 to 5 years and is lent at a
fixed interest rate of 6% per annum.
One can utilise the money borrowed from a start up business loan for the payment of business
expenditure like:
-
Wages
-
Workplace Rent
-
Equipment
-
Stock
-
Furnishing
Before choosing a lender, check the rates charged on the loan and
the amounts that are offered. This will help you in the calculation of the
repayment (the money that you borrow plus interest).
Working of Start up Loans
A range of start up business loan is available online. For this, you may need a cash flow forecast
and a business plan as per the requirements of the companies.
While borrowing the money, you will have to make an agreement on
its repayment with an interest over a fixed period.
In case you have initiated your business a couple of years ago, you
still might be eligible for the loan.
Following is the eligibility criteria for a start up business loan:
-
You are the owner of a business that is based in the UK
-
You are 18 years old or more
-
You reside in the UK
Furthermore, every lender provides a maximum of a certain amount to
every business owner. However, in the case of a business being owned by more
than one person, a certain limit to the amount that one company can borrow is
also imposed.
Positive Effects of a Start up Business
Loan
Now that you are clear with the concept of a start up business
loan, let us see its pros:
#1: Building Credits
A solid business profile of credits is beneficial to start-ups
since it builds credibility and the business’s ability to pull new creditors
towards them in the future. The business credit is completely different from
the owner’s personal credit. Borrowing money for business establishes such
credits since the lender keeps reporting the credit bureaus about the timely
payments.
#2: Options for Repayment
As compared to individuals, businesses generally have more
flexibility in repaying loans. This is crucial for start-ups to repay funds,
especially the ones who have limited capital. Unlike other business loans,
start-ups have a choice of structuring payments in a way when they are earning
less profit. Once the business becomes profitable, payments slowly augment.
#3: Cover Start up Costs
Borrowing funds for the payment of start up costs is advantageous
to business owners, as they would not have to rely on credit cards, savings,
and personal credits to fund the purchases of new business. The personal
financial risks that business owners take for start-ups are eliminated through
start up business loan.
#4: Retain Ownership of Your Business
When you opt for a start up loan, you decide not to choose the
investors who may demand a share of equity in your venture. These investors are
likely to have the power to make decisions regarding your business that
directly or indirectly affect it. Therefore, if you are stubborn to maintain
control over your business, going for a start up business loan is a better idea.
#5: No Fees
The repayment of the loan includes a 6% interest rate on the amount
borrowed. Unlike other business loans, start up loans do not require payment of
any additional fees like early repayment fee or application fee.
How to Opt for a Start up Business Loan
Now that you have decided to get a loan, you must consider the
following to choose the best start up loan for your business:
-
Find lenders that offer the amount of loan you need
-
Evaluate the rates to have an idea of the repayment
-
Apply for a loan with the lowest APR (Annual Percentage Rate)
Ensure that you compare as many loans as possible in order to find
the lowest possible rate.
Other than the above-mentioned, you must also be aware that the
lenders generally consider the following points during your application:
· Your business viability- You have to demonstrate the demand for your product and services
in order to ensure the lender that you will be able to meet the monthly loan
repayments.
· Your personal affordability- Although it is an unsecured loan (a loan
that does not require any collateral), you will have to provide the personal
survival budget along with the application that contains the information about
your personal income and expenses. This will again be required to ensure the lender
that you will be able to repay the loan.
· Your credit worthiness- A credit check is required to make sure about your history of
financial behaviour.
Conclusion
A start up business loan is everything that you require to scale
your business or begin with one. Without risking your personal wealth, you can
simply apply for the loan that will prove to be extremely advantageous for you.
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