If you thought generating ideas for your business was a
difficult task, then arranging necessary finance in the form of
business start up loans would seem even more difficult. Many
entrepreneurs succumb at this stage, only to lead their idea to
dumps. Entrepreneurs, who withstand the challenges of the
process, continue to shine in the world of business.
Capital has been rightly referred to as the lifeblood of any
business. Business starved of capital during the initial stages
of its formation, would be similar to malnourished children who
were not fed properly during their childhood. The growth of the
business will be stunted, often affecting negatively its
productivity and efficiency.
Entrepreneurs no longer have to depend solely on their own
resources for purposes of capital. Many loan providers are ready
to finance promising business ventures. The loan is referred to
as business start up loan. Amounts on business start up loan
ranges from £30,000 to £250,000. Entrepreneurs can qualify for
more loan amount, provided the business plan is very attractive.
Loan proceeds will primarily be used for purchasing the
necessary machine and equipments, paying for legal
documentation, maintaining office and any other expenses that
crop up during the initial formative period. Moreover, business
start up loan contributes towards the working capital.
Borrowing through business start up loan is fraught with a
number of challenges. The very first task in the process will be
to generate faith in loan providers that the amount lent on
account of business start up loan will be safely returned.
Preconceived notions about new entrepreneurs make the task
difficult. The negative notions are further strengthened through
two factors:
•Firstly, borrowing entrepreneur has zero or very less
credibility in the market at the particular point of time. Loan
providers fear risking the loan amount on borrowers with low
credibility.
•Secondly, the borrowing entrepreneur is still to form business
or the business is still to show results. Lending at this stage,
without having knowledge about how the business fares in the
long run, is perilous for the loan provider.
The borrowing entrepreneur is thrown into a dilemmatic
situation wherein they cannot prove their worth till they start
business. They cannot start business until they get the
necessary finance. And they cannot get the necessary finance
till they are able to prove their worth.
However, not all loan providers look at new venturists with
suspicion. New venturists are considered a unique group of
people who have a unique set of characteristics. A sound and
foolproof business plan works well for new entrepreneurs.
Bankers study the plan well and then decide if it will be viable
to lend.
Guaranteeing payback through collateral is another important
method of getting good deals in business start up loans. These
are referred to as secured business start up loans. As a part of
this method, the borrower will have to offer lien on certain
asset/assets to the loan provider. This process is also referred
to as hypothecation. Though the asset will continue to be in
possession of the borrower, loan provider has every right to
claim the asset in case of non-payment of loan.
Loan terms for business start up loan ranges from 5 to 25
years. Given the unique income structure of businesses and
self-employed individuals, wherein income is not guaranteed,
flexible repayment schedule will be especially helpful. Under a
flexible repayment schedule, the borrower gets to repay in the
manner that he chooses. Monthly repayments can be increased,
reduced and discontinued altogether depending on the
entrepreneurs finances. The arrangement will have to be accepted
by the loan provider. Sometimes, regular payments for a certain
period may be the prerequisite for flexible repayment schedule.
Business start up loans may exceed personal loans in terms of
interest rate. The typical APR on a business start up loan will
be anywhere between 7-13%. Online comparison and searching loan
providers will ease the process, besides improving the quality
of deals. Rates may go upwards depending on the presence and
value of collateral and the credit status of the borrower.
Business loans will not suit borrowers who want full control
over their business. Some loan providers would like to dictate
terms and thus curb the control of the entrepreneur over his
business. The borrowing decision must be made only after an
impartial and impatient study of the pros and cons of the
method.
About the Author: Michael T. Brian is the author of this
article. He is Masters in Business Administration and expert in
finance. He writes about various finance related topics. If you
are interested in Michael's financial advice, you can visit
http://www.find-business-loans.co.uk.
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