Factors to consider when looking at startup business loans

Every startup loan comes with slightly different options and terms. When you're considering your options, these are among the factors you should take into account:

Amount available

Will the loan give you the level of working capital that you need for your business to get off the ground quickly? In your planning you need to be clear about the amount you need to get the business up and running, including marketing and getting through the early weeks before customers start paying. Businesses fail because they run out of cash. If the loan isn't enough, you should look at other options, with either a different provider or by boosting it with other investment.

Interest rate and loan term

You're borrowing money because you expect your business profits to exceed the cost of borrowing, in particular, the interest that you're charged. The rate you're offered often reflects the level of risk that the lender feels they are taking. This is influenced by factors such as the industry you're in, your credit history, the term of the loan and the level of security that you can offer.

The loan term is the period over which you plan to make repayments. This is typically between one and six years. Many loans allow you to repay early without penalties, which can be useful if the business performs better than you expected.

Security required

Most loans for startup businesses are unsecured. This means the lender has no rights over any of your business assets. In a secured loan arrangement, the lender has rights over a specific asset, such a property. If you can't repay the loan, they can take control of the asset in order to recover some of what they are owed.

In an unsecured loan arrangement, you may be required to provide a personal guarantee. This commits you to personally repaying the loan even if the business is unable to.

Alternatives to startup loans

Not all entrepreneurs use a traditional loan, repayable over a fixed term, to finance their business. A growing number of alternatives exist, some of which are more flexible.

These alternatives include:

• Working with an angel investor, who usually wants a share in the ownership of the business in return for their cash.
• Crowdfunding, through one of a growing number of websites that allows small investors to put money into a business.
• Invoice finance, a short-term finance option that provides working capital for B2B operations.

The digital technology revolution continues to provide new ways for those looking to lend to connect with new businesses seeking capital.

Let us help you unlock finance for your new business

Whatever stage you’re at in your business journey, we can help you raise the money you need right now.

Whether you’re a startup, you’re planning a new growth phase, or you simply need short-term capital to cover a shortfall, talk to us. Our team of specialists has helped many other businesses like yours.

Because we work with a panel of 250 funding providers, we have access to a wide variety of finance solutions. They include loans, invoice finance, asset finance and other options.

Don’t let lack of working capital hold you back. Get in touch with us today to see how we can help you.