A recent survey by Hitachi Capital Invoice Finance found that 35% of SME owners try to avoid borrowing money at all costs, with varying reasons. 53% of companies want to owe as little as possible, while 10% admitted that borrowing money has led to further debt for their business. The survey also found that 85% of business owners do not completely trust traditional lenders – either because of previous experiences (56%), because of the bank’s reputation (37%), or for security reasons (26%). With that in mind, how can you choose a lender that is right for your start-up?
Our earlier blog post “How To Choose The Right Funding Strategy For Your Business” explained the different funding options available to SMEs, including loans, investments, grants and crowdfunding. If you have already decided that you want to get a loan, the next question is: where will you get your loan from?
While some loan providers will want to see that you have been trading well for a year or two, there are start-up loans available if you’re just getting off the ground, so if this applies to you, a search for start-up loans is a good place to start. As a start-up you won’t have the financial history of an established company, but a business plan can help you to show your projections and demonstrate to the lender that you know what you’re doing.
Secured or Unsecured?
You may also want to think about whether you want a secured or unsecured loan. A loan can be secured against assets such as commercial property, vehicles or stock, and if you stop making repayments the lender can sell those assets to recover their losses. Unsecured loans don’t require any security, but this means that businesses generally need to be more stable, and therefore this might not be an option for start-up companies.
If your cashflow is difficult to predict, a fixed term with fixed monthly payments might not be the best option for you. Luckily, there are more flexible loans out there with revolving credit facilities. These loans allow you to borrow what you need up to a maximum amount, and you only pay setup fees, and interest on the outstanding debt.
Some lenders specialise in particular industries, such as construction or recruitment, or offer merchant cash advances that could be useful if you make a lot of your money through card machine payments. It could be worth looking around to see if there is a lender that specialises in your field – the perfect loan could be waiting for you.
Wherever you decide to apply for your loan and whatever the terms are, a robust business plan can mean the difference between succeeding or failing in securing a loan. cbm can write a business plan that will help you to find the right lender for your business. Contact us online using the form on the right or call 01604 420 420.