Startup loans: How to apply

A startup business loan is financing for businesses in the initial growth stages. These loans can help purchase stock, buy premises, raise capital for advertising or provide you with simple working capital to get started.

However, before applying for startup loans, there are different factors that you have to consider. Applying for a startup loan for a new firm might be risky without understanding all the facts.

This article will walk you through the loan process and explain what you should do to improve your chances of success.

Table of contents

What types of startup business loans are available?
How do I apply for a small business startup loan?
How long will it take to apply?
What does the startup loan company check?
What are UK Government small business loans startup?
Final thoughts

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What types of startup business loans are available?

Here are a few startup loans types you might want to consider:

1. Secured business loans – A secured loan is a type of financing that utilises an asset like your property or other tangible assets as security against borrowing. This reduces the lender’s risk and results in a better finance rate.

2. Unsecured business loans – This kind of business loan is unsecured, and you are not required to secure an asset against borrowing. Since no security is provided, there is a larger risk to the lenders, which results in a higher interest rate on the financing.

3. Bank Loans – These are the startup loans from traditional banks. Most high street banks provide small business loans; however, a bank’s beginning loan criteria could be strict.

4. Crowdfunding – Online platforms for crowdsourcing are excellent for new company ideas and startup projects. By getting plenty of investors involved, you get the money you need to launch your product and enhance your brand exposure.

5. Business Accelerator Programmes – Entrepreneurs can receive funding as well as business training.

6. Peer-to-Peer Lending – Peer-to-peer lending services let you connect your startup company with several private investors ready to offer you funding. Unlike crowdfunding, this idea does not require you to give up any stock or shares.

How do I apply for a small business startup loan?

A company strategy, financial predictions, and some personal information are typically required when applying for a business loan. This will simplify for lenders to evaluate your affordability levels and the soundness of your business plan.

The business plan must outline how you intend to use the borrowed funds and how to repay them.

You might also be required to provide business bank statements and your balance sheet to demonstrate assets and liabilities, so having the necessary paperwork prepared can assist in avoiding delays.

Then you must follow the specific application process for the loan or finance you are looking to secure, including going through the relevant eligibility checks.

How long will it take to apply?

The length of the application procedure for startup loans and other business financings might vary significantly based on the type of financing, the lender, and your level of preparedness.

You may be able to make sure that your application is as quick and easy by gathering all of the necessary documents in advance, such as bank statements and the final draft of your business plan. On the other hand, taking assistance from financial experts can help you streamline the process.

What does the startup loan company check?

After you submit your application for a startup loan, they will look at the following:

Your credit history
Loan companies will check how successfully you managed your credit obligations during the past six years. If you’ve had any defaults or CCJs in the last six months, it’s unlikely that your proposal will get accepted.

Your affordability
They will also check whether or not you have the extra money to make the payments. This will be carefully examined to ensure you can afford the loan.

How capable your business is of succeeding

This part of the assessment is the most difficult to prepare for because it primarily depends on the opinion of your appointed business advisor.

The assessor will carefully review your business plan to determine whether or not your business is likely to thrive. The following things will be examined:

  • Whether there is a requirement for your service or product
  • If you have the required skills to operate the type of company you want

What are UK Government small business loans for startups?

Startup loans guaranteed by the government are an alternative form of financing. When offering a business loan, commercial lenders typically request security. This means that in the event of a default, you must offer collateral to cover the loan. You are also required to provide a personal guarantee.

Startup loans from the UK government are unsecured personal loans. You are not required to provide a personal guarantee or collateral.

Startup loans range from £500 to £25,000, with a total of £100,000 available for one company if four business partners or directors apply individually (the maximum being £25,000 per applicant). Repayment is done in affordable instalments and is charged an annual interest rate of 6%. You can pay back the loan over 1 to 5 years. There are no early repayment fees or application charges.

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You are eligible for a government-backed startup loan if you can meet the following criteria,

  • You should have a minimum age of 18 years 
  • You should live in the UK
  • You should have the right to work in the UK
  • Your company must be based in the UK.
  • You should prove that you weren’t able to obtain a loan from alternative sources
  • You must prove your ability to pay back the loan.
  • Your company must be trading for no more than 36 months.

Final thoughts

Financial institutions provide startup loans that let companies grow without interrupting their activities. The advantages of startup business loans will help small businesses to continue with their regular daily operations even in difficult financial circumstances

A startup loan is simple to obtain, but you, your company, and your employees must keep a clean credit history and spend the funds wisely to expand the firm and turn a profit.

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