It’s a sad fact that most startups don’t succeed. In fact, some reports suggest that as many as nine in ten new businesses don’t stay the course.
The difference between success and failure isn’t always down to the amount of cash in hand, but this is very often the determining factor.
So if you don’t have the capital to succeed, could your best move be to take out a loan?
What borrowing can do for your business
There are a number of very useful things you can do with a business loan:
- Bolster your cash flow
- Purchase a key piece of equipment
- Move to larger, more prestigious premises
- Hire a new employee with vital skills
- Launch a major marketing campaign
- Acquire another company to power your growth
But what sort of loan is right for you?
Secured versus unsecured lending
In simple terms, a secured loan means that you offer a piece of collateral. This could be property, plant, equipment, even equity. Should you fail to keep up with your repayments, it is relatively easy for your lender to seize the collateral to cover their losses.
With an unsecured loan, there is no collateral, and if you default the lender will need to obtain a court order before any of your assets are at risk.
As a result, secured loans are less risky for the lender and riskier for you, whilst unsecured loans are riskier for the lender and less risky for you.
The advantage is that secured loans are easier to obtain and usually attract a much lower interest rate, so they can be a very good option if you are confident of being able to repay (and if the loss of the collateral will not leave you unable to trade – or even homeless).
What are the alternatives to a loan?
Of course, there are alternatives to a traditional loan – and each has its own advantages and drawbacks.
A merchant cash advance allows you to borrow and then repay via a fixed percentage of your daily credit card sales. Unlike a traditional loan, this means you will never struggle to make a fixed repayment during a quiet business month. On the other hand, the cost tends to be extremely high.
With equity finance, you offer a stake in the company to a business angel in return for an injection of cash. This can be a great move if the angel has the expertise to boost your business, but if the company suddenly takes off that equity stake could be worth a fortune.
Meanwhile, peer-to-peer funding and crowdfunding allow you borrow from private individuals or other businesses, either individually or collectively.
The interest rate will depend on your creditworthiness and you will probably need an original and inspiring business plan to attract crowdfunding.
Finally, invoice factoring and discounting allow you to borrow against your invoices, the instant you issue them – at Cashsolv, we’ll advance up to 85% of their value.
Repayment is then made when your customers pay you. With factoring, we will take control of your debtors and assign experienced credit control professionals to secure early repayment, whilst with invoice discounting you retain control of your own debtor ledger.