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Wednesday, December 25, 2019

The positive effects of a start up loan

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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