There are plenty of people these days who decide they want to break free of the chains of employment and set up their own company. This is a venture that can be very exciting but also very daunting, as there is so much to sort out . You need to think about factors such as business premises, staffing, equipment and stock, and countless other things related to the type of business you plan to set up. Another thing you need to think about is finances.
When it comes to finances, there are various options you may be able to turn to in order to fund your new company. It is important to remember that you may not be eligible for all forms of finance, as this can depend on factors such as your credit score, the type of business you are setting up, your financial situation, the value of your assets, and a range of additional factors.
Some of the Finance Options You Can Consider
Before you start looking at the types of finance you may be eligible for, it is important to work out how much you are likely to need in order to fund your new company. You should also obtain a copy of your credit report and score so you can more easily determine eligibility. Some of the options you may be able to consider include:
Business Loan
One of the options that may be open to you is a business startup loan. Many people go directly to their own banks for this type of loan but never assume that this will mean you get the best rate. You should always shop around to see what rates and terms other lenders, including online lenders, can offer so you can get the best deal possible.
If you opt for a business loan from your bank or another specialist lender, you will most likely need to produce a solid business plan to enable them to make an informed decision with regards to your application. You are also likely to need a decent credit score and history to get this type of loan. You should make sure you check the terms and eligibility requirements before making your application to avoid being turned down and negatively impacting your credit score.
Business Credit Cards
Another option that may be open to you is a business credit card, which could be ideal if you do not need a huge amount of cash to fund your new company (although you may be able to get a credit card with a higher credit limit if you meet the criteria). A credit card from a prime lender will generally require you to have a very good credit score. If your score is not too good, you may be able to look at applying through a sub-prime lender, although this means much higher rates of interest.
If you do decide to go with a credit card to fund your new company, it is advisable to look at getting an interest-free card, which offers a far longer period of interest-free credit. This then gives you more time to clear the money you use on the card without being charged any interest.
Personal Loan
You can apply for a personal loan with your bank or another lender and then use the money from this for your new business. These loans are designed to be used for any purpose, although the borrowing limits tend to be lower than with business loans. However, if you do not need a huge amount to fund your business, this could be a speedy and convenient means of getting the money you need.
As with other loans, it is important to ensure you shop around to get the best deals on personal loans. You should also bear in mind that most lenders, apart from sub-prime lenders, will expect you to be in a good financial position, in employment, and have a good credit score. This option may be suitable for those who are going to set up their business while still working in their regular job.
Secured Loan
If your credit is not all that good and you are struggling to get finance using any of the other options, you may want to consider a secured loan. These loans are designed for homeowners and the amount you can borrow will depend on the level of equity you have in your home. Because it is a secured loan, the risk for the lender is not as high, which means they tend to be more lenient with regards to your credit score.
Of course, you do need to remember that these loans are secured against your home, which means you must ensure you can keep up with repayments. Failing to do this could result in you losing your home, which makes this a high-risk option if you think there is any possibility that you may end up defaulting on repayments. So, make sure you think about this option carefully before you make any decisions.
Choosing the Right Option for Your Needs
There are other possibilities you can consider when it comes to funding your business. These include getting friends and family to invest, looking at crowdfunding options, or simply using your savings if you have any put aside. You need to look at your personal situation, financial circumstances, and credit score to get a better idea of which of these options is likely to be right for you. In addition, you need to have an accurate idea of how much you will need to borrow.
One other thing to bear in mind is that your credit score will be adversely affected if you make multiple applications that are then rejected. You should, therefore, make sure you check the eligibility requirements for any form of finance very carefully before you submit an application, as this will reduce the risk of being rejected. You can then save your credit score from any further harm as well as avoiding wasting time on applying for finance you are not even eligible for.
