How Can A New Business Take Advantage Of Loans?

6 April, 2015

When you have exhausted your private savings, the next step most start-up businesses take towards raising finance is to give out equity in their company for an investment. However, this method might not suit everyone and most start-up owners are becoming wiser to the dangers of giving out equity in their company and as such, are turning their attention to business loans. Although banks are generally careful about lending to start-up businesses, those loans are there and if you own a start-up, there are ways you can take advantage of them. Some of those ways are listed below.

Have a detailed business plan

This is one step which start-up business owners really do not like and it’s understandable. When you have an idea for a business, you just want to run with it and maybe you already are doing business and things are going on very well. However if you are serious about getting a business loan, you need to have a detailed and well thought out plan showing how much money you need and how you intend to make use of it.

Understand the sort of loan you need

Depending on your needs, you could go for a long term loan or a short term loan. Short term loans typically are loans that are for less than three years. They are used to solve cash flow problems and are quite handy for start-up businesses. The only problem is the high interest rates. Long term loan on the other hand, have lower interest rates and are loans that are for longer than three years.

Be prepared to guarantee

Generally, new start-up businesses are perceived as high risks by banks. This is because they have a poor credit rating and are still new and untested. In order to take advantage of a start-up business loan, you should be prepared to offer a personal guarantee that should the business fail, you would personally be responsible for repaying the loan. Sometimes, where your ability to repay the loan is in doubt, the bank might require you to get another person who is has the financial ability to repay, to co-sign the loan.

Maintain a healthy credit score

Loan providers will always refer to your credit score when they are going through your loan application. This is what enables them to see you credit history and know if you will be able to repay the loan. If you have bad credit, it does not automatically mean you will not get a loan, it will just be more challenging.

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