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What Loans Are Available for Business Startups?

What Loans Are Available for Business Startups?
Written by
Alex Carlson
Published on
April 28, 2020
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Loans are assets borrowed from a personal, individual, or organization, in return of which the borrower pays a sum equivalent to the principal amount along with some extra amount, which is called the interest. A loan includes the reallocation of the subject assets for a particular period between the lender and the recipient (the borrower). Financial institutions, like banks and credit card companies, act as a provider of business loans and it is one of the significant activities for their proper functioning. While, for other institutions, bonds are an issue of contracts and is a quintessential origin of funding. For developing any asset, it is a common practice amongst individuals and organizations to have some financial assistance in any kind, and the best way, one sought after is towards a credible loan from a trusted source. People with business startups also often end up taking loans from some of the other financial institutions. Moreover, a startup loan can be a great way to help accelerate the growth of the business. So, let's dwell more in-depth into this.

What exactly is a startup business loan?

Financial aid for the individuals who own a company or business that is at the initial or early stages of planning or growing or the owner of the business plans to expand the business. The funding can help buy premises, raise capital, purchase stock for marketing and advertising costs for manufacturing, or give the straightforward working capital to get you going.

For availing a loan for startup business, the following points must be fulfilled:

  • The planning of business should be detailed and proper.
  • The funds needed should be stated accurately and clearly.
  • The utilization of the loan amount should be made clear in the plan of the business.
  • Make it clear what your business is about, mention the goals of the business, and do mention the returns from the business and the growth of the same.

There are two types of business loans available in general,

  • Equipment financing.
  • Line of credit.

Equipment financing

Equipment financing is the type of loan in which the borrower makes repayment of the loan amount once the business starts producing money. The lender lends a definite amount of money to the borrower who purchases types of equipment for the business. This purchased equipment is declared as collateral. Although there is a risk associated with this loan type, the rate of interest charged by the lender is quite low. To avail equipment financing loan, a credit score higher than 680 is essential. A detailed credit report, vendor quote, and a report highlighting how the purchased equipment is intended to be used are the documents that one needs for availing this loan. If you are interested in the benefits of an equipment financing loan, then you must know, the customer can use the depreciation of the equipment as a benefit of tax for over several years.

Line of credit

In the present day, each and every one of us is familiar with a credit card and how it works. Well, a line of credit type business loan works in the same manner. A credit card is associated with an individual, but in case of a range of credit type business loans, the credit is related to the business of the individual. It also has its benefits. There is no obligation for the first 15 months to pay interest on the borrowed money if the line of credit is low. This 'no interest policy' makes it easier for the business to get running, because, there are more funds available to invest in the business. However, once the 15 months period comes to an end, an interest is to be paid. The rate of interest can vary from 7.8% to 19.90%. Interest is charged on the sum that is used by the borrower, similar to the system of a credit card.

How to apply for a startup business loan?

The process is quick and straightforward. There are many applications available online, from banks and other financial institutions that can be used when a startup business loan is to be availed. First of all, visit the website of the lender. Next, find the form and fill it and do upload the documents, as mentioned in the way. If online form filling is not suitable for you, then you can, of course, visit the nearest branch of your money lender in person and submit the application form along with the required documents. The loan amount will be credited directly into your account, once the verification process of the application and the documents are done.

Advantages Associated with Startup Loans

There are a couple of benefits associated with startup business loans. For availing a startup business loan, there is no need to provide security needs. The repayment tenures related to a startup business loan is flexible and simple. Once the loan gets sanctioned, the loan amount will be credited directly into the bank account of the borrower. The minimum numbers of documents are required for availing of the loan. A frequently asked question under this domain is, what is the maximum amount of loan that you can avail for your business. Well, the answer is simple – it depends on your lender; besides, factors like your credit report also play a crucial role in it. If you are looking for loans for the expansion of your business, then term loan is an excellent platform of help to you. Term loans are available for business expansion, besides purchasing equipment and starting new projects. Many people wonder whether the loan amount can be used as wage money or not. Well, it depends on whether it was mentioned in the loan application or not. Being a resident of the United Kingdom, having an age of 18 years or more, and owning a business based in the UK, that has been under operation for less than two years are some of the other necessary factors for availing the loan for your business. Image by Free-Photos from Pixabay

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