How to get a bank loan for your startup business
While crowdfunding and relying on family members or angel investors can be a viable source of funding for starting a new business venture, sometimes the traditional ways are the best. That’s why so many new businesses decide to take out secured business loans to bridge gaps in funding.
A secured business loan allows a business to fund its day-to-day operations and facilitate growth, without worrying about whether the founder can afford to feed their family. It’s a strong first step that can lead to major successes further on up the road. But if you’re not 100% certain how to secure a loan you could end up wasting a lot of time and resources.
With that in mind, here are the four steps to consider when taking out a loan for your business.
Every lender is going to have specific requirements related to the health of your business and its turnover. As a startup, however, you’re going to be relying on your business projections, so ensure you’ve spent as much time as possible making them convincing. You will also need to have your business officially registered in the UK, so the lender knows you are paying tax.
Decide what kind of loan you need
If you’re eligible, the next step is figuring out how much you need, how long you need it for and what you can afford to repay regularly. For those looking for a short boost of cash, a short-term loan with fast repayments and low interest might be the most practical option. If you want to grow your business, however, over the course of a few years, you might need to consider a medium or long-term loan with lower monthly payments paid over a few years or more. Indeed, some long-term loans can be paid back over 30 years.
Secured or unsecured?
Some loans are secured by an asset that you own that you could end up forfeiting if the business doesn’t perform. The other option is to take out an unsecured loan that doesn’t require an asset to secure. Of course, unsecured loans are more difficult to obtain but it’s certainly worth putting in the extra legwork because it’s never fun to lose your house after a bad business decision.
Consider other funding options
If you go through every step outlined above but the lender still rejects your application, then don’t be shocked. With the economy feeling the pinch right now, many lenders have begun raising their standards when it comes to who they lend to and how much they lend. In this case, you can either apply for a loan with another lender or seek out alternative funding options.