Alternatives to a Bank Loan when setting up a Small Business
It’s difficult to access finance for your start up if you don’t have a proven business track record or if your relationship with your bank isn’t too good. There are ways around these difficulties, so don’t lose hope - 500,000 start-ups were established in 2014 and this figure is set to expand during 2015.
Unfortunately your credit rating follows you around like a bad smell. Financial mistakes that you made in the past are recorded and form part of your credit score. This can damage your access to funding as most lenders will always look at your credit score and base their decision on its results.
If you do have a poor credit score, then consider a secured loan in the form of quick logbook loans. These companies aren’t bothered about your credit worthiness, they will take over ownership of your car in the form of your logbook and once the debt has been repaid, then ownership will revert back to you. As long as your motor is under ten years old, you can expect to be offered up to 75% of the value of your car.
This method of raising capital has enjoyed increasing popularity over the last few years. This is partly due to the fact that the banks didn’t seem to want to lend to anyone and the interest rates, introduction fees and other costs made bank business loans prohibitively expensive.
According to the website Start Ups UK this type of alternative finance ‘will grow by 23% by 2017.’ This is great news for small to medium enterprises (SMEs) as crowdfunding opens the door to a wide range of investment options and is a viable alternative to the banks. You can raise any sum of money by this scheme but you must initiate a sound crowdfunding scheme in order to attract interest in your start up.
Let the Angels be your Friends
Another source of finance are so called ‘Angels.’ If you have prepared a thorough business plan and can demonstrate that you are realistic about costs, book keeping and any other business essentials then it’s worth while contacting the UK Business Angels Association.
This organisation introduces wealthy investors to attractive start-ups and they use their money as well as advantageous tax breaks, the Enterprise Investment Scheme and the Seed Eternise Investment Scheme, (SEIS) is of special help to small companies with less than 25 employees that may still be at the planning stage or just starting out. The Angels will also be able to help start-ups with their wisdom, and contacts, which are invaluable to any entrepreneur.
Small Government Loans
There are a variety of schemes available from the state and some of these options also offer mentoring schemes. A recent report by Experian stated that many start ups failed within their first two years as a result of a lack of mentoring.
An article in The Guardian lists a number of forms of finance that may help a new business. Never be afraid of asking for financial help, and if you apply to a scheme that also has a mentor then you stand every chance of long term success.