When asked what the biggest hurdle is when starting your own company, most people are going to respond, ‘the finances’. It’s no secret that starting your own business requires a lot of cash up front. You need cash to pay for equipment, inventory, overhead costs for space (renting or leasing business space), employee’s wages, and so much more. There are fixed and variable expenses involved, and these need to be covered. In the end one of the most common reasons new businesses end up failing is because they struggle to cover start-up costs.
Unless you happen to have a trust fund, or have been saving your entire life, chances are you’re going to have to look into financing options. One route that many start-ups end up going for is a business loan. Now with that said there are a few different types of business loans available to you, more specifically secured and unsecured business loans. Are either of these right for you, if so which one? It’s important to look at them closer.
What is a Secured Business Loan?
A secured business loan is a very common type of loan. With this loan you will be borrowing money and you will put up collateral in return. Should you default on paying back the loan, the bank or lender can then take legal action against you so that they can take the collateral you have put up.
This type of loan allows you to borrow the maximum amount of money since the bank doesn’t see it as risky. They know they have the collateral to fall back on. Because the loan is less of a risk, you’ll be rewarded with a lower interest rate.
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What is an Unsecured Business Loan?
An unsecured business loan is money that is borrowed from a bank or other lender without any sort of collateral being put up. In this type of agreement the lender is taking all the risk. Should you default on your payments, there is nothing that they can take ownership of. For this reason you may be approved to borrow less money, and the interest rate tends to be higher.
For a new business just starting out, an unsecured loan is often the only solution available. If they had access to collateral, they would probably use that to finance the business. Sometimes the lender may ask for a “director’s guarantee” in these unsecured business loans. What this means is that if you default on paying back the loan, they can then take legal action against the company’s director. Clearly this is something you will want to establish before signing anything.
Don’t Just Focus on the Banks
If you are going to go ahead with a business loan, it’s important you keep in mind that banks aren’t the only ones able to help you out. There are other routes such as trustworthy loan companies like Aspire Business Loans that specialise in both secured and unsecured business loans. You can apply for a loan anywhere between £1,000 and £300,000 and they will search a number of lenders to ensure you get the best deal possible. Often you’ll get a decision that same day.
These companies are brokers, meaning that they will have experience dealing with lenders and therefore the likelihood of the lenders trying to take advantage of you is much smaller.
The Right Solution Exists
The good news is that even if you don’t have the start-up cash required for your new business, there are plenty of solutions out there that can provide you with access to the cash you need. It’s a matter of finding the one that best matches your needs. Remember, starting a business is a long term commitment – finding the funding may be difficult, but it might not be one of the hardest things about starting a business. Once the costs are covered, your business will only be a success if you’re willing to put in the effort to make it one.