Business loans are an effective way to set up a new business if you don’t have the money to fund your startup costs. You can acquire loans from banks, the government, family and friends, third-party investors, or the public. Different loans have varying business lending criteria, and the best option will depend on your individual circumstances.

Common corporate loan requirements

To qualify for funding from a bank, you will need to prove that you have a strong business plan and the means to pay the loan back. This plan should include your necessary start-up and ongoing business costs, pricing strategy, and projected cash flow forecast.

Banks will also check your credit history before granting a loan, similar to applying for a business credit card. For loans, banks may also take collateral in case you cannot repay, especially for poor credit business loans.

Alternatives to a bank loan

A loan involves a single lump sum, but you can instead apply for a business line of credit. These have high interest rates but increased flexibility in how much you take out and when.

Business grants have stricter criteria on who can apply and qualify. However, if you are successful then you can receive funding without needing to pay anything back.

Third-party equity funding means that investors fund the businesses in exchange for a share. However, this means you will not entirely own the business and therefore have less control over it.

You can also crowdfund and encourage members of the public to invest in your small business. In return, they may receive a discounted product or service and exclusive perks. This method requires a strong social campaign and the public nature may mean others attempt to steal your business concept.

At J Sweeney Accountants, our accounting specialists can help with business planning and loan applications. For more information, email [email protected] or call 01604 950034.