28 July 2021
Start Up Loan

A Complete Guide to Start Up Loans

What are start up loans?

Start up loans can be used for any purpose, not just to buy equipment. This type of loan is ideal if you are starting your own business and need a quick injection of capital to help you get on the market.

The usual approach to this type of loan is to approach your existing banks or building societies for a line of credit to be used for funding your new business activity. However, this can be extremely difficult as many banks expect a business plan that poses some serious risk to them. Rates are also usually much higher with this type of loan.

What options do I have?

Another option is an ‘Owner-Financed Loan’ which is a loan offered by businesses to support a new business with minimal risk. Owner-Financed schemes are generally reserved for businesses that are in transition. Once this type of scheme has been agreed, the bank guarantees 75 per cent ownership of the business. The bank then has full control over business operations, including employment and delivery system, but is not in the business itself. Owner-financed schemes are not available in the UK.

In the U.K, start up companies can apply for a small start up loan of up to 1 million pounds. This may be less in some cases. This is designed to help new companies with no assets, which makes this loan less risky to banks and traditional lenders. They usually expect a business plan, though it has to be competitive. Once again, rates will be competitive.

How do I apply?

To apply for this type of loan you typically have to provide a business plan. Be prepared for it to take a couple of months as it involves a lot of research into your business. Many banks will require a plan that includes a high degree of accuracy. Don’t expect just to walk into a bank and ask for this type of loan.

Final Words

So, what is a start up business loan? Basically, as the name suggests, it is a loan given to start up businesses. In many instances, banks and building societies will not do this type of loan, though this is by no means excluded. The risk is to take the time to track down the right bank and most importantly, a sound business. This type of loan could be your option if you look at this way. It may not be the only option, but it represents a good way to get your business off on the right foot.

With traditional bank loans, you will need to make a significant down payment of up to 10 percent in order to get approved. This may be difficult for some people as a range of deposits is required. There is, however, a lender in the marketplace who could provide a loan without this down payment. This lender is known as a finance broker. They operate in a similar way as your bank. The difference is that they can often provide a greater rate of interest on your loan and will often require less fibres. For certain lending institutions, this could prove to be very difficult to obtain. Nevertheless, financing is one way to get started.

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