Loans and grants
The
traditional way of securing start-up cash is going to a bank; ideally your bank
where you have some kind of relationship and where they know you. Bank
loans are good - if you can get one.
The UK Business Bankers Association estimates high-street banks reject loan
applications from some 100,000 small business each year - representing a
funding shortfall of £4billion.
Banks
will and do lend huge sums every year - but in the post-financial crisis environment
they are more risk averse and are therefore less likely to back more esoteric
start-up propositions.
It
is difficult for small businesses to secure a loan unless they have a
substantial track record or hold valuable assets like property.
Individuals
with a low personal credit score are also likely to be denied a business loan
from the outset. Many banks will also be unwilling lend if the loan applicant
has not injected their own personal funds into the venture.
They
simply want to be assured that you'll be able to repay the money they lend to
you. All banks have a similar approach to judging this.
Remember
that commercial loan from a bank can be called in at anytime so make sure that
you have a plan B even if you are successful in getting offered the loan.
The
main thing banks look for when lending money is whether your business is able
to repay the money they lend to it. All banks will have slightly different
criteria they use to judge this. But there are common things you'll need to
show them to prove you can repay the money.
Bank
loans are usually individually priced and have negotiable terms and conditions.
Things like a solid balance sheet and attractive future revenue forecasts are
likely to generate a low rate of interest.
There
are also a handful of business grants - although they are hard to come by.
These include The Prince's Trust, which offers small low interest loans of up
to £5,000 for young entrepreneurs between the ages of 18 and 30
The
Royal Bank of Scotland (RBS) also have a grant scheme for Scottish start-ups
called The Edge Fund. (More info here: https://scottishedge.com/)
In
the grand scheme of things grants usually represent an incredible small amount
of funding that business actually need to grow and prosper. People should use
grants as leverage for something else.
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