How Business Loans Can Transform Your Startup

Are you about to start a business? You better batten down the hatches as a lot of challenges will come your way. One in five businesses go bust every year. Taking hold of the market is the biggest challenge, which is purely reliant on a constant flow of cash. When entrepreneurs interviewed through a survey, they said insufficient cash was to blame for the shutdown. While external funding sources are available, securing a deal depends on multiple factors, and a sound business is one of them. The future of start-ups, therefore, seems to hang in the balance.

A business loan can be a great idea to meet your business expenses when cash is tight, but it is not so easy to get the nod, especially if you are a start-up. Your business must have been running for at least two years and crossed the breakeven point. Many entrepreneurs seek these loans to fund the initial capital, but they may not be suitable for this.

In fact, most lenders will not give the green light to your application if you say the reason for borrowing is raising initial capital because you do not have savings to fund it. They will be more than happy to meet your day-to-day expenses; however, it should raise alarm bells if your cash flow problems are not temporary.

Three must-dos for your business

Before you understand how business loans help your start-up grow, you should focus on the three fundamental steps to take it off the ground:

• Do your research

Once you have come up with a business idea, you should always check if there is demand for it. Many entrepreneurs end up with an abject failure courtesy of no demand for their products or services. Do some online research and know if your competitors are offering the same kind of product. The chances of coming through are so bleak when you seem to come as a monopolist.

However, if you notice there is demand for it, you should gauge how your competitors market it. Jot down what you like and what you dislike about your competitors to frame your marketing strategy to sound better and set yourself apart from them.

• Draw up a business plan

A business plan sets the roadmap for your business. It will walk you through from the launch to marketing to ensure that you have enough cash coming in to hit the ground running. Some lenders will ask you to submit a business plan to check the probability of your business success.

With the help of a business plan, you can deliberately decide how to navigate money to retain the most cash. Having an idea of cash flow will help you down the line while choosing a funding source for your business.

An effective business plan can lower the chances of running out of money and struggling with securing loans for a business in the UK if needed.

• Look for funding

Self-funding cannot always be an option. Make sure you have a good business plan to borrow money from a direct lender. However, there are various types of funding sources. Make sure that you choose the right one. Business loans can be helpful for initial funding only if you want to fund the gap in cash. Otherwise, they are best known for financing temporary cash flow problems.

How business loans can benefit your startup

Here are the ways how your start-up can benefit from a business loan:

• It can help meet operating expenses

Operating expenses can be hard to manage for a start-up. At the outset, it takes time to hit the breakeven point. In the interim, it will be hard to manage business expenses. Lacking of funds will result in your business grinding to a halt.

Luckily, business loans can prove to be a knight in shining armour. They can fund small and large needs of funds depending on your business situation. Of course, a lender would carefully check your repaying capacity. If your repaying capacity is suspected, you will be offered less than you want to borrow.

The good thing about business loans is that they are paid back in fixed instalments, even if they are small. You can budget around your payments and ensure that you do not run out of cash. Interest payments will not be too high if your credit score is up to snuff.

• A good opportunity has come your way

Opportunities do not wait for your business to be established. It is likely that you will come across a good opportunity that will allow you to make a lot of money. Of course, it will help you grow your business faster. In the real world, the success of a business is determined based on your growth, which, without profitability, is not feasible.

If it requires you to invest a great sum of money and you do not have it, you can turn to business loans. Lenders generally are more willing to lend for profitable opportunities. However, you will still have to disclose a backup plan because nothing is bound to happen in the business world.

All formalities are done online. Borrowing money online is easy. Once the application is processed, you will get money in your bank account.

• Equipment purchase

Start-ups often struggle to have sufficient cash to buy equipment. Savings might not be enough to meet the initial cost of your business. Thanks to direct lenders, they will help you purchase equipment with a business loan. You can secure a larger sum because your equipment will be served as collateral, meaning you are free to use it the way you want, but your lender will have the upper hand.

Some lenders may require you to put down additional security; however, it is rare when your credit rating is bad, and your business does not sound very effective in terms of profitability. Additional assets as security mitigate the risk of a lender. However, make sure that you will pay off the debt on time. Otherwise, you will lose your assets.

The upsides and downsides of business loans

Here are the advantages and drawbacks of business loans:

• It is quick and easy. You can apply for a business loan online. You will get money on the same day after the approval process is completed.
• You can get a handsome amount of money. Business loans are ideal for small and large funding.
• You will be charged interest, which may be high when your overall financial situation is not so good, including your credit score.
• You cannot access a new loan unless you settle it.
• There is a risk of losing an asset if the loan has been secured.

The bottom line

Business loans can help you in various ways. Whether you want to buy equipment or you need it to run a marketing campaign, they can provide you with a quick funding source. However, at the time of using these loans, make sure you will not struggle to pay them back.

It becomes more necessary to be careful about your repaying capacity when you are securing it against your business assets. Missed payments will make it hard for you to secure a loan next time at lower interest rates.