Updated: 6th November 2020
Without a trading history or previous credit, you may find it difficult to obtain finance from traditional sources as a start-up outfit. Most banks will require solid proof that your business is in a sound financial state and you have a good track record of maintaining your company’s financials. Naturally if you’re a start-up company, this is simply not possible. However, there are still ways to get that much-needed injection of cash to get your company off the ground; you just need to look at specialist start-up loans and grants. In finance terms, a start-up is usually classed as any business with less than two years trading history.
Even with a start-up loan, you’ll still need to convince lenders that your business is a good prospect. This means you will have to prepare a thorough business plan and backed up by realistic financials, ideally prepared by an accountant. Also, be prepared to give a personal guarantee as security for the loan; for some lenders this is a mandatory requirement, they simply will not lend the money to you without a PG in place.
There are various ways start-ups can secure finance for their new venture. There are government funded schemes which allow up to four Directors to borrow up to £25,000 each. These government-backed loans typically last anywhere between one and five years, with the interest rate fixed for this period.
Depending on how much money you need to borrow, you could consider asking your bank for a short-term loan or an overdraft. Whether you will be accepted for this depends on many factors, mainly being how much you want to borrow and what you will use the money for. If you are a start-up, it is almost certain that you will need to sign a personal guarantee as security. This means that should your business fail for any reason, the onus for paying back the money borrowed falls to you as an individual; it cannot and will not be written off as part of any liquidation procedure. Therefore you need to think carefully before signing up to such an arrangement. Nobody sets out in business with the intention of failing, however, this can and does happen, and you need to ensure you protect yourself as much as possible from the fall out if this does end up being the case.
Should you struggle to obtain funding from a traditional source, don’t despair. There are now a range of alternative avenues you can explore. One of the most popular is crowdfunding. Typically done through an online platform, crowdfunding involves numerous investors contributing relatively small sums of money. Investors are then typically given shares in the company. As the individual investments are for small amounts, the risk is also low and consequently this allows more niche projects which may otherwise be declined funding from a bank the opportunity to get off the ground.
Also available are investment and equity funds. With the equity funding you have to be willing to hand over part of your business to the investor, and they will sit on your board of Directors.
If you are a start-up or a small business looking for finance to take your business to the next level, Real Business Finance can help. We can scour the market, both traditional and non-traditional channels, to find the best funding option for you and your business. Call us today to arrange your free consultation.