A business startup loan is the financing of any kind given for the purpose of starting or developing startup businesses. One important factor for the growth and progress of businesses especially startups is finance. While some people recognise the need to get loans for their startup business, few do not find it necessary. Also, the fact that getting loans especially from commercial finance companies is a herculean task does not help matters. Nevertheless, this does not diminish the importance of startup loans or the fact that getting one is not impossible.
The United Kingdom (UK) government on the realization that the idea or plan conceived by entrepreneurs would probably die an idea if funds are not made available to make it a reality, set up the Startup Loans Scheme in 2012. This scheme provides funds, support and mentoring to young entrepreneurs who want to startup businesses or grow them in Northern Ireland, Scotland, Wales and England.
The mission of this scheme is to see to it that young entrepreneurs are given the necessary tools that would aid their businesses thereby making them successful in all industries and sectors.
It is important to take loans that in the long run provide profit for you that would make paying back the loan easier and faster, like buying equipment that increases productivity.
Here are some reasons why you need a startup loan.
To Start or Grow your Business
This of course, is the primary reason why people get loans. As stated above, funding is a crucial element in a business. Without funds, most things would go wrong and since you have no inheritance to tap into or you basically do not have money lying somewhere to be used when necessary, then getting a loan is your best option.
If you are thinking of starting a business, you need a loan to generate capital. Capital is the sum of money used in starting a business. If you already have a business but need to make changes or add features to ensure the smooth running of the business and its growth, you also need a loan. You should know that even large companies and industries still take loans for their businesses, therefore getting assistance in terms of funding is a common act in the business world.
To Build Your Business Credit Score
A business credit score is a number that shows if your business or company is good enough to receive a loan. Most times when an entrepreneur applies for a loan, his credit score would be looked at amongst other criteria. If the credit score history isn’t strong enough, the loan application could get rejected.
As a young entrepreneur, if you’re looking to apply for a large-scale loan in subsequent years, it is advisable to apply for a small loan now. The reason for this is that taking smaller loans and of course paying off your debts on time would build your business credit score for the future. Therefore, when you need to go all-in and apply for that heavy loan a weak business credit score won’t be what would hinder the success of your application.
Another angle to this is that getting smaller loans could help you build a relationship with a particular lender and on seeing your consistency in paying off your debts would assist you in getting that large loan you plan on applying for in the future.
To Purchase Equipment
Do not underestimate the importance of getting the necessary equipment for your business. Equipment increases productivity and effectiveness which in turn brings in profit for the growth of your business. Be careful to get equipment that answers a pressing need and helps to make work easier and faster, as against getting a “nice to have” equipment.
Also, instead of taking out cash loan to buy the equipment, you can opt for equipment financing. With this type of financing, the equipment purchased would serve as collateral. Thus, the inability to pay off your debts would mean that the loan would be taken from you.
To Purchase Inventory
An inventory represents one of the most important assets of a business. It is the available raw materials used in the production of goods and the available produced goods for sale. How do you purchase inventory without funds? One important fact about a business is that you need to spend money to make money. Money would be spent to purchase inventory which would then lead to profits on the investment made.
As a startup business owner, there would be times when you would need to purchase a large amount of inventory but cannot afford to do so, and you would have to rely on applying for loans. If you’re lucky enough the profit made from the purchased inventory would be enough to offset your debts to a reasonable extent and also see to other needs.
You might be wondering what do a startup business or a small business need a helping hand or more hands for? You, however, cannot do the running around alone, more hands mean more done. There would be bookkeeping, sales, customer service, delivery and other jobs that might seem not difficult but takes its toll on an individual.
A loan is therefore necessary for you to expand and even go a step further in training your staff. One fact that successful businessmen agree on is the importance of treating your workers right, as they could either grow or destroy your business. Training your workers and paying their salaries at the right time is an incentive to put in their best in the growth of the business.
Conclusively, you would neither be the first or last entrepreneur to get a loan for a startup business. Most great business owners you see today and aspire to be like started from scratch like you and also had to get aids in financing their businesses. Getting a startup business loan, however, is not an automatic ticket to having a successful business, as funding, though very important is just one of the many factors that make a business develop.