If you need to purchase a capital asset for your business you may be able to obtain it through a hire purchase or leasing agreement. For more information on this visit the Financing and Leasing Association website.
You may be able to find a friend or member of your family willing to lend you money for your business. There are both advantages and disadvantages to this. You may be able to secure a loan at a zero or low rate of interest but you will also have a close relationship with your lender which you may find very difficult if things don’t go as well as expected.
It is fair to say that most small businesses secure business loans through their bank. You may approach any of the recognised high street banks for a business loan but you do need to be well prepared and have a comprehensive business plan. Business loans usually come in two forms. A long-term loan and (/or) a short term loan in the form of an overdraft facility. A good tip when deciding what funding would be appropriate for your business is to match the purpose of the loan to the funding. For instance, if you need money to buy an asset which will last for a few years such as computers or other equipment, then this should be funded through a long term loan. If you need some working capital to tide you over between starting the business and sales invoices being paid then this should be funded through short term borrowing – an overdraft facility.
Your chances of securing a loan will be greatly enhanced if:
- Your business plan demonstrates that your idea is commercially viable
- Your sales forecasts are tightly linked to your market research
- The gap between your break-even point and forecast sales is quite wide
- The business will generate sufficient profits to cover the loan repayments
- You have also made a financial contribution to the business
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