Guide to start-up loans and their alternatives

posted by 3 years ago in Guide
Guide to start-up loans and their alternatives

Every day there are people across the UK with lightbulbs above their heads – these people are our future entrepreneurs or the ones to watch many will say but, not every bright idea has enough cash flow to begin and as a start-up, it can be very difficult to secure a loan.

So what are your options?

A Start-up Loan

Pros

  • If your business has only just begun or has been running for less than 2 years you may tick all the boxes for a start-up loan
  • Even though securing a start-up loan may take time and hard work, the interest added on repayments tends to be lower than other funding options
  • Start-up loans through banks often present tax benefits- the money used to repay the loan are exempt from tax
  • Taking out a start-up loan gives you multiple options in regards to the loan you need to take it

Cons

  • The bank that you through will have to confirm all credentials you provide them with which means the process can become very time-consuming
  • Bank loans are often secured by collateral (generally your home) so, if you are unable to repay the loan you run the risk of losing your property
  • Although you may have applied for a specific amount – the bank won’t always grant the full amount even if you have been approved

Bank Overdrafts

Pros:

  • Business overdrafts are a great alternative to taking out a business loan
  • The process is quick and easy and can be accessible the same day
  • A business overdraft is one of the best and flexible ways to control your short-term lending
  • A great alternative for seasonal businesses and for businesses who may suffer a month not forecasted

Cons:

  • Banks are able to remove the facility at any given point – which could cause issues for your business, especially if you are struggling (however, this is only common for businesses who are facing financial difficulties)
  • If your credit score is low, it is unlikely that you will gain access to an overdraft through your bank – there are options, though!
  • If you need to increase or extend your overdraft there will usually be hidden fees which can become very expensive.

Asset Finance

Pros:

  • Asset finance is secured loan which will be secured against an asset of your own – very similar to a commercial mortgage
  • In desperate times asset finance is a quick and easy way to require funds to help your business
  • As it is a substitute finance solution it won’t harm banking facilities
  • You can plan around your repayments so that it is affordable

Cons:

  • If you are unable to keep up with your payments, you will lose the assets you have secured
  • If you are looking to cancel the policy early – some are difficult to end when it suits you
  • In some cases, you may have to pay additional fees in advance
  • Sometimes it can become more expensive than paying for the assets outright

Crowdfunding

Pros:

  • Crowdfunding is an easy less time-consuming option compared to endless meetings with banks and private investors who might not even want to invest in your company after you have invested time in them!
  • You are able to access capital through crowdfunding
  • You don’t always have to offer equity to your investors – incentives or something relevant are often preferred
  • You can create a customer base before your company officially starts as crowdfunding opens your business up to a panel of people who are supporting your business already

Cons:

  • If you require a large capital crowdfunding cannot always help in terms of funding
  • When starting your own business, you are lead to believe you are your own boss but when raising funds through crowdfunding doesn’t always mean you are your own boss
  • Many platforms work on an all or nothing way – if you are unable to fulfil your goal (reach 100%) then your company can be stuck until reached.

A Start-up Loan

Pros:

  • If your business has only just begun or has been running for less than 2 years you may tick all the boxes for a start-up loan
  • Even though securing a start-up loan may take time and hard work, the interest added on repayments tends to be lower than other funding options
  • Start-up loans through banks often present tax benefits- the money used to repay the loan are exempt from tax
  • Taking out a start-up loan gives you multiple options in regards to the loan you need to take it

Cons:

  • The bank that you through will have to confirm all credentials you provide them with which means the process can become very time-consuming
  • Bank loans are often secured by collateral (generally your home) so, if you are unable to repay the loan you run the risk of losing your property
  • Although you may have applied for a specific amount – the bank won’t always grant the full amount even if you have been approved