Starting a business can be one of the most exciting and trying times in anyone’s life; whether you are looking to completely quit your job and start a new enterprise or simply run a side hustle from home. There are so many things to consider, primarily the finances and feasibility of being able to support yourself or augment your income whilst your new business are in its infancy.
It is so important to prepare your finances; we are looking at how to compare loans online to ensure your business is getting off to the best start as possible.
Compare Small Business Loans
Business loans have so many more caveats and requirements than a loan applied for and used in your personal life. This can make it a much longer process, and often, a much bigger commitment in terms of the value of the loan.
Having said that, you can go directly to a lender for a business loan. Many personal loan lenders are also able to provide credit for small businesses because they are so well capitalized by investors looking for low, reliable yields. Opting to finance your startup this way is often the quickest route to cash, which means you are less likely to lose out on the opportunity cost of not acting. Your business could propel in your market or launch at the most opportune time of year, simply because you had quicker access to money. Depending on the amount you wish to borrow from a direct lender, they could also be unsecured, which would not put your business property at risk of repossession.
In turn, you can also apply for small business loans from a bank or building society. As standard, the approval process does take a lot longer, but you might have more options. If you are simply looking for a line of credit or revolving credit rather than an injection of cash, talking to your bank about setting up a low-interest overdraft might be a more suitable option to access the money you need. The best option for setting up this kind of credit is just to go direct to the bank that your business current or checking account is with.
If you are leaning towards a lump sum that can allow you to make big changes or improvements to your small business, you might be better off going directly to a lender. It will also be beneficial to know exactly how much money you will need to borrow.
There are so many more variables with business loans than there are with personal loans. This means it is even more advantageous to compare business loans online, as there may be specific or niche businesses that can invest or lend to you.
Some things you ought to consider or prepare for before you apply for a loan:
- Details of your existing assets
- Balance sheets or bookkeeping
- An income statement
- How much you need to borrow
Business loans are riskier than personal loans because the repayments are dependent on the income and success of the business. This is extremely hard to guarantee, especially for a new or small business that could be subject to economic changes that they cannot control. As a result, business loans are likely to have a higher interest rate.
For new companies or those who are running on a very strict budget, such as a start-up, it will also be worth securing a fixed rate interest loan. This will help minimize the fluctuations that could wipe out a business. You will be able to budget for your repayments more confidently.
How to Use a Personal Loan for Your Start-Up
Although a personal loan cannot be directly used to fund a new enterprise, there are ways you can help your business grow or get off the ground, especially if you are planning to stay in your current position or are able to show a consistent and reliable income from your small business already.
- Consider using a personal loan to expand or renovate your home. If you run your business from home, building on an office or a cabin at the end of the garden that can be your HQ could give you the space you need to grow.
- Consider using a personal loan to upgrade your security at home. If you are running a business in which you deal with sensitive information or expensive goods, it could be catastrophic for your reputation and your bank account for this to be compromised. A personal loan could be used to install a sophisticated alarm, new windows, and doors.
Comparing Business Loans With Bad Credit – Will Your Personal Credit Score Play A Role?
As has already been established, a personal loan cannot be used for your business directly. It also cannot be used to invest in other businesses, as this is considered unstable. However, when you are looking to start a new business you may want to consider looking into your own credit score, as this could have an effect on your profile as a business borrower.
What’s The Difference Between Personal and Business Credit?
There’s not too much difference between the two and a credit score is a metric, customized by lenders, to evaluate someone’s creditworthiness and financial responsibility. Credit scores for both businesses and individuals will look at historic data, including:
- Credit card use
- Auto loans or car payments
- Mortgage payments
- Frequency and velocity of inquiries for credit
- Reports and actions, such as bankruptcy or court actions
If you are setting up to be a sole trader, as an independent online retailer, and you need a cash injection to get things off the ground, a lender is likely to want to assess your personal credit score. This is because the business is not yet established and has no valid data to base a decision on.
As the business progresses and works with invoices and credit more frequently, lenders may be able to separate you from your business and treat you as separate entities. However, some credit risk assessors suggest that your business’ credit will not be judged independently until there are a minimum of 20 employees and certain criteria are met.
Direct lenders are typically a little more relaxed about who they lend to. This is because investors are flooding the direct lending market with cash because of the positive returns it yields in a safe landscape. As such, if you are looking to launch a business or even take your SME to the next level, you might consider comparing direct lenders to ensure you are in with the best chance of separating your financial data sets.
You might also want to be aware if you are a young entrepreneur and have an unestablished credit history, the options available to you as a borrower might be quite limited. This is because a lender cannot assess how you have managed your finances in the past.
How To Get A Business Loan With Bad Credit?
Compare Your Loans
The first thing you should do is compare your options with a price comparison tool or a direct lender. You will be asked to enter some information both about yourself and your enterprise. Comparison software will be able to present you with the options available to you and lenders that have appropriate appetite to invest or lend to you.
It is worth noting that some companies choose to stay off price comparison websites (these are called aggregates). It is always worth using at least two tools to ensure there is no biased information.
Apply For A Grant
Grants, scholarships and similar non-repayable funds could help you get your enterprise off the ground. Typically, to qualify for this kind of credit you will need to present your businesses to a panel of judges. You will have to have a comprehensive business plan, projections for progression and often, the business itself will have to provide some kind of service of benefit to the community or even a wider audience.
As we have already mentioned, direct lenders are booming because of investor demand. Coupled with the innovation of new fintech companies, alternative lenders may not actually pay attention to credit score, particularly when it comes to business loans. Some brands will be able to base a loan on your business model or your reliability for repaying other lines of credit, such as invoices into greater consideration. This may be hard if you are just starting out but will certainly be a viable option for fledgling businesses, operating for a year or more.
Getting Your Personal Finances In Order Before You Start Your Business!
We have already talked about how your personal finances matter when you are starting a business. This can be of concern to someone who has made mistakes with their finances or mismanaged credit in the past. In turn, we have also discussed how some business loans, especially those available from alternative and innovative companies, are only available to businesses that have been successfully operating for a year. This means it could be most beneficial for you to launch your business without delay, even if it’s not the size or the scale you need it to be. You can start building brand awareness whilst taking a year to stabilize or improve your personal credit score:
If you have multiple outstanding debts, one of the best options will be to source a debt consolidation loan. This allows individuals to pay off all their outstanding debts and collate all the money owed. This does not get rid of what you owe or wipe your loans, it simply means that you will have paid back several creditors and now only owe one. This is a much more manageable and tidy way to handle your finances. It reduces the risk of missing a payment that is spread out throughout the month and is at risk of being forgotten or lost in a string of in-goings and outgoings.
Keep Your Job – If Possible!
We understand that you must be itching to launch your passion project or fruitful enterprise. However, if you are willing to open your trading name and slowly build up your brand rather than ask for big, lump-sum business loans that could be risky, you might consider keeping your job, at least for the first year you are open.
This means you can show lenders that you are a reliable and responsible individual. You will also be able to show a steady means of income until the day you decide to take your business full time, perhaps with the assistance of a much more affordable business loan than would not have been available a year before.
Get A Business Credit Card
This might sound counterintuitive, but there are benefits. You can slowly start building up your business equipment and spread the cost. This is only an effective method for rebuilding or establishing a credit score if you are in a position to meet the repayments. Money experts recommend that you pay off a minimum of 10% of your credit card bill every month to maintain your credit score. However, this is to maintain, if you are looking to build on and strengthen your score, it is recommended that you pay off more than this.
- Pros and Cons of Financing a Business
- 8 Reasons Why You Keep Getting Denied for Payday Loans
- Minimize the Risk to Your Personal Credit When Starting a New Business
- How to Avoid Destroying Your Personal Credit While Starting a New Business
- How to Raise Money to Finance a Franchise