Should I Take Out a Business Loan to Start a Business?
- 10th August 2018
- Posted by: Loanable
- Category: Resources
Owning your own business and company is not for everyone. Not all of us have the entrepreneurial spirit and drive required to start-up a company and business, let alone the money to do so.
Starting-up a business takes a few things, and one is the drive, ambition, and motivation to take nothing, and grow it into something. It also takes cash.
As we are seeing on the High Street these days, that even some of the more established companies and stores are closing their doors and going bust. Poundworld being one of the most recent.
So when you think of having your own company and business, with all the companies folding, it can be a bit scary. However, people do it all the time, start-up a new business.
So there you are, you have a great idea for a product or service and want to go into business for yourself, how to fund your new company?
Getting the Money to Start-up a Business
There are two basic ways to fund your new company, using your money, or using someone else’s money.
There is an old saying, “why use your money, when you can use someone else’s”.
If you use your money to fund a new company, the money can come from a few places:
* Savings: Your personal savings, money you have saved.
If you use someone else’s money:
* Credit cards: People can and do use credit cards to fund certain aspects of starting-up and running a business.
* Your own personal credit lines: Your own overdrafts, personal loans, even borrowing from friends and family.
* A business loan: There are business loans specifically for companies, and that includes start-ups.
* Crowdfunding: Crowdfunding is basically getting small amounts of money from a large number of people to fund a project, or business idea.
Those that pay or fund the project can be rewarded in a number of ways, monetarily as an investor, or some other form of reward.
Now you may say, am I not funding my new business using my credit cards and lines of credit, and technically you are right; but you are borrowing. You are borrowing money in some form, that needs to be paid back.
Only savings is really your money.
So the question then becomes, do I take out a business loan to start a business?
And the answer is, why not?
By taking out student loans and attending university, it is in the hopes that you earn more than some people who do not attend university. And statistics show that uni graduates do earn more in their lifetimes.
A mortgage loan is an investment in buying a property. Historically property appreciates in value, meaning it increase and goes up in value.
A property purchased for £200,000 may be worth £220,000 in a few years time depending on market conditions.
Starting your own business is an investment as well. As a business owner you are planning and hoping to be a success and make money.
So you have decided you are a go for a business loan to fund your new company. What is required of you next?
Getting Your Business Loan
The type of business loan you may need or be approved for will depend on a few things, and one is the nature of your business. Will you be a product based company selling a product or products, or will you be a service based industry.
You also need to do your homework and research, and have a business plan, a business model.
A business model needs to show:
* What is your business about, products or services.
* Who are your customers/clients, who will use your services and/or buy from you.
* How will you reach these customers, advertising, walk-in traffic, go out to sell.
* Prices, what will you be charging for your products and services.
* Your costs, expenses, rent, wages, overhead, ect.
* Projected profits, how long before you will be profitable, and what profits you will make on each sale, and also a time-line for profits.
Lenders like to see a business model, and it shows you have done your homework.