How can I get a business startup loan?

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Thousands of business owners are looking for alternative sources of funding as bank lending figures continue to fall. If you are one such firm and are on the lookout for a business startup loan to get your venture off the ground, this comprehensive guide provides details about the options that you may have at your disposal, and also the steps that you can take to be in a better position for a business loan.

The following are some of the main ways that a start-up owner can finance their business without applying for a bank loan:

Savings

The first place that most entrepreneurs tend to look when seeking to fund their start-up, is their savings account. Since the financial crisis, interest rates have only increased by a quarter of one percentage point. This means that the money that is holed up in your bank account may serve a better purpose than being in a savings account, if used judiciously to grow your business. 

The best part about using your own money to start a business is that you do not have to spend a lot of time in trying to find investors. There is also the added benefit of not having to give away equity at an early stage and you don’t start out in debt. Another major advantage of utilising your savings for funding your business is that if you need to put more money in at a later stage, investors will regard this step as a confident move in establishing a venture and they will certainly appreciate your personal financial commitment to your venture.

Family Loans

Asking a friend or relative to turn into an investor is another step that most entrepreneurs consider taking at an early stage in their business. A supportive family with money to spare, can provide a reliable, willing and fair source of loan funding. Loved ones and relatives are more likely to have faith in your ability than a third party investor and it is possible that they may charge you lower interest or none at all, which is unlikely to be the case if you get a commercial organisation involved. 

There are certain drawbacks as well when it comes to mixing finance and family such as the possibility of a strain developing in the relationship. Therefore you must carefully weigh your options before asking your family to pitch in. Before any commitments are made, it is important to ensure that the finance model or provider is completely aligned with your interests and also those of your business.

Bank Overdraft

Companies which have a fluctuating income can benefit from a bank overdraft as they are known to give a flexible and quick boost to your cash flow. In the leaner months, you can dip into the overdraft and repay it when the business gains momentum. 

Most banking organisations charge interest only on the amount which has been withdrawn and there are also some that provide tailored packages for new businesses. However, it must be noted that the interest charged by the banks is slightly higher than the base rates.

Grants

For those who are unaware, there are literally hundreds of different types of small business grants provided by the government to encourage the growth of businesses in the UK. The difficulty lies in finding them and understanding the application process. 

Making a successful pitch can be a long and arduous process. However, if things work out in your favour, a small business grant can provide the financial impetus that your business needs to grow into something bigger, or simply to get off the ground.

Community Schemes

Many Community Development Finance Institutions (CDFIs) have been established in the UK to help businesses and individuals who are experiencing difficulty in accessing finance, or have been turned down by lending companies and banks. CDFIs can help at every stage from providing bridging loans to putting together working capital for equipment and property purchases. 

But they are known to have restrictions in place. For example, you must be a social enterprise or a micro-business to qualify. Another requirement that you will need to fulfill, is that you must be based in a disadvantaged part of the country.

Crowdfunding

Crowdfunding sites bring people together from various walks of life to pool money towards a particular business idea or venture, making it an extension of the charity sponsorship page in the world of business. It works in a similar way to that of an investor except that here it could be 20 people putting in £500 each or 4,000 people each making an investment of £1. 

Investors or donors on crowdfunding platforms such as Crowdcube or Kickstarter are generally individuals who provide small sums of money. This means that you will not be subjected to the rigorous and grilling conditions which you might expect to find in the office of an angel investor. 

It also gives you the opportunity to test the waters, as you will be able to understand how popular your business idea is likely to be amongst an inbiased audience. If your business idea appeals to the people on crowdfunding sites, much of your initial marketing efforts will be taken care of as your business will get some crucial, organic, word-of-mouth publicity.

Business Cash Advance

There are also alternative finance providers who are looking to invest in start-ups which have the potential to grow into a big venture. They have come up with an array of financial products which differ in their payouts and repayment terms. These forms of finance have been specially tailored to suit the needs of a growing business and you are likely to come across a funding option which fits your bill somewhere in amongst these options.

A business cash advance is a financial product which is becoming increasingly popular as it allows a business to receive money upfront before invoices and debts have actually been paid. It is an unsecured business loan for which you do not have to provide any collateral.

Asset Finance

An asset-based loan works in a similar way to that of a mortgage. Money is borrowed against an existing possession and if you fail to repay the loan, the asset is repossessed. However, this option may only be suitable for businesses which have already reached their break-even point and are looking to expand their operations.

As you can clearly see, there are many ways in which it is possible to get financial assistance for your business, provided you take the right steps for your business, at the right time.

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