Ad ID: 8294
Added: June 27, 2020
Ad Type: Brand New
Location: United Kingdom
City: United Kingdom
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I want to start a business: how do I finance it?
The best businesses are built from the ground up, and most entrepreneurs start with a very limited budget to fund their very first venture. But what is the bare minimum startup finance you’ll need to get your company off the ground and make ends meet?
According to researchers, the average UK start-up company spends £22,756 in its first year. That includes everything from accounting fees and legal costs to staffing overheads, utility fees, marketing, and production costs. However, it’s possible to kick-start a new company with less than that.
If you’re keen to give your new business the best possible chance of success, it is worth attempting to secure some form of financial support. To help you wrap your head around the different types of startup finance, we’ve compiled a handy how-to guide that covers all of the basics on business loans, grants, and crowdfunding.
What are small business loans?
The most common way to secure startup finance is to apply for a business loan. This is simply a type of borrowing instrument that is designed for commercial businesses rather than individual use.
With most business loan providers, which are normally banks, you could borrow anywhere from £1,000 to £3m. This is ordinarily repayable over any period of time up to around 15 years. There are two types of business loans you should be aware of:
- Unsecured loans are borrowing instruments that enable your business to receive money without having to use your business assets as a security on the amount you borrow.
- Secured loans enable you to borrow money from a bank or investor using an asset that belongs to you as a security. If you fail to repay the loan as specified in your loan agreement, your lender then has the legal right to sell that asset to recoup their losses.
Most of the small business loans you’ll encounter on the high street are going to be unsecured, with repayments over one to five years.
There are more subcategories of loan types, and they vary in size and popularity. For example, invoice financing enables a lender to purchase your outstanding invoices for a fee, releasing money owed to you by customers. Some lenders will also extend cash advance loans, which is essentially just a payday loan for your company.
It’s worth noting that not all business loan lenders are regulated. That being said, lenders extending borrowing instruments to limited companies are regulated by the government, which means they’re legally obliged to meet certain requirements that protect your interests. Meanwhile, several institutions that lend only to sole traders could be unregulated.
No matter what type of loan you receive, it will generally come attached to one of two types of interest rate: a fixed rate or a variable rate. A fixed rate loan means that the amount of interest you pay back on top of the amount you borrow will not increase over time. Variable rates can go up and down unexpectedly – so you will generally want to avoid variable rate loans if you’re on the hunt for a long-term funding solution.
You can use any loan you secure for just about anything that relates directly to your business, from purchasing products and taking on staff, to paying off debts and buying new equipment.
If a business loan sounds like something you’d like to check out for your business, your best place is to start on the high street. Chances are, your current business banking provider already offers some form of incentivised business loan that could be suitable for your needs. HSBC, NatWest, Lloyds, Barclays and Santander all have their own borrowing products designed for small businesses.
For business loans of under £25,000, banks will normally allow you to apply directly online. If you’d like to borrow more than that, you’ll probably be required to phone in to discuss your funding needs or visit a branch.
If you’re worried about your personal credit history and how it may impact your loan application, it’s also worth going to your local bank and chatting with an expert. Most lenders will assess business loan applications on a case-by-case basis, and your own personal circumstances will often be weighed or discounted against a rock-solid business plan.
Just remember: before signing up for any sort of business loan, you should shop around. There’s always a better deal to be had somewhere else, so you should take your time and do your homework.
Unsecured business loans from Starling Bank
Starling Bank, one of the new digital banks operating in the UK, started offering unsecured business loans up to £250,000 in January 2020. According to Starling, their business loans are fair, flexible, competitively priced, and compare well with other providers.
Find out more about this offer of unsecured credit using this link: Starling Bank Business Loan.