Businesses traditionally find raising finance quite a difficult proposition in the main, this is because financial institutions such as banks have very strict lending criteria. If you are a start-up company with very little security to offer the bank it’s going to be tricky to get a loan.
There are no easy ways of approaching a bank and it is not a quick fix, in many cases you will be paying higher interest rates than other types of finance such as a personal loan.
So what else can you do? You can seek help from angel investors who will put up the money for the loan and in most cases take a stake in your business. If you have ever seen the programme Dragon’s Den on the BBC then you will get the idea. You won’t necessarily have to pitch in front of a panel, although this can be common, but if you do secure an investor you not only bring cash to your company but in many cases expertise from the investor or investors themselves.
Another way of raising capital is using your own money and taking out a personal loan. You could use a credit card or another type of loan like a logbook loan if you have bad credit and can’t get a traditional loan. There are risks with doing this because when you take out a personal loan and default on it your personal credit record is affected and your own personal finances could be at risk such as your property. When you take out a business loan you are separating your personal finances from your business.
Many start-up companies have been founded on personal finance via credit and have been successful, it allows people who otherwise don’t have the funds available to invest into their business the opportunity to get their company off the ground or grow it further.
Of course it is a risk but many entrepreneurs are risk takers and view it as part of the process of being successful. Maybe that is the fact why people who do take these risks are successful, because others aren’t willing to take on the same risks themselves.
Can you start your business without finance?
Before even exploring the possibility of business finance have you looked at the option of just building up the business from nothing? Now this is definitely not always possible, but it can be achieved in certain circumstances and it does depend on the type of business you are starting.
The first thing some people do is to look for finance before starting their venture. Why not start your venture and see if you can grow it before trying to raise any cash. This is obviously the ideal way to start a business because there is no interest to pay on loans, there are no loans to pay back and you don’t have investors who ultimately act as your boss, so you might as well be employed.
You need to think about whether finance is right for you in your business and if it is, what type of finance is right. There are so many options to choose from and they all have different implications. If you take out a logbook loan you are risking your vehicle, if you go for a business loan it can be a difficult process to obtain. If you choose a credit card you could be putting your personal finances at risk.
These are all valid considerations so think carefully before taking up any loan for your business. Do your research and speak to other stakeholders in the business so you make the best decision.