More than 60% of startup entrepreneurs seek start up finance at one stage of their business growth or the other. Most of these do seek funding from external sources.
You need to look into start up funding for several reasons, these may be loans for the business working capital, to hire more staff, procure new machinery or to reduce your monthly costs.
The following are the commonest reasons why startup owners look into a start up financing;
The primary reason you should consider a start up finance is that it can serve as your working capital.
Having sufficient working capital is an important aspect of a startup’s financial health.
Not having sufficient working capital can hamper the growth of your business in the future. This is the reason why many startup owners look for external funding to support their future growth ambitions.
A loan, for instance, will cover up for some short-term funding requirements while giving your business the funds it needs to grow.
External funding can also bridge the gap between supplier payments and customer orders. According to the UK 2015 Business Bank’s Funding Survey.
Working capital is the biggest reason why startup owners seek finance externally.
Seasonal business can benefit most through working capital funding, especially during the quiet periods to cover basic business expenses.
Business Growth and Expansion
The working capital will also ensure that business startup owners take advantage of new opportunities by investing in new products and services that will enable them to expand.
The working capital loans will provide useful cushions in case you need extra cash and you can rest assured that the day-to-day running of your business can be covered extensively with the loan, and you will also have the funds to meet unexpected costs.
If your profits are not strong enough to expand your startup, you should look into a start up funding to expand your business.
Procurement of Asset
Purchasing new assets is another reason why startup owners must consider business financing. You may have enough cash as working capital, to cover daily running expenses of the business, you may not have enough money to purchase new assets to expand your business- this is where a startup loan can be useful. With a long-term repayment option, you can plan your cash flow in advance, if you want to make the most of the startup loan opportunity.
You can use your asset purchase loan to buy different assets depending on your needs for business expansion. You may want to procure a van, office or new IT devices, or new machinery to produce higher volumes of products.
For Business Diversification
Diversification of a business may be another reason why you should consider a startup loan.
While some people can successfully start a business through personal funding, most people will require external funds to take their business to a profitability level.
Business diversification simply means going into a new line of business without leaving your current one.
It is a good business strategy to diversify your brand and introduce new and innovative products and services for business growth and profitability.
A new loan to start a business may be used for buying stock or even hiring new staff to enhance business growth and productivity.
Growth Funding Opportunities
You may have a viable business plan but if you don’t take a futuristic approach towards growth, your business plan and strategy may fail.
Whether your growth plan is to increase sales, find a new market, or even expand your range of products and services or move into a larger premise, getting a loan for financing such growth plan is one option you must consider.
Startup finance will help you take advantage of new growth opportunities in order to achieve your ambitions. If the daily running cost for your business is already covered, you can get external funding to make your business grow.
Debt Restructuring Purposes
Another reason why you should look into a start up finance is when you need to restructure your existing business debts.
A startup loan can be used to consolidate your business borrowing while reducing costs of servicing your debt will eventually make your business financing more manageable in the long run.
One of the ways where a loan for debt restructuring will be helpful is that it will reduce the total number of monthly repayments and it could potentially reduce your total debt repayments.
Refinancing your existing business debt will help your company grow by freeing up extra cash for your business working capital and expansion.
It Improves Your Credit Rating
Financial experts in the UK believe that taking up start up finance is one of the surest ways to boost your credit score over a period of time.
In order to use this loan to boost your credit score, you must avoid defaulting in payments. As a matter of fact, most banks will finance your startup when you have a strong record of repaying your debt and your profit margin is quite good.
One of the long-term benefits of getting a startup loan is that it gives the lender the chance to invest in your future especially when you can prove that you are capable of expanding the business to make it more profitable. As you make repayments within the agreed period, your credit rating will slowly grow.
Startups do have different purposes for funding, most startups do aim to grow by expanding their product reach and sales in the UK.
Most startup owners will likely want to use their startup loans to increase their range of products and services, especially when the demand for such goods and services are steadily increasing.
Investing in capital costs, assets, new products and services, and new staffs and IT facilities have been the top priority of startups in the UK, Fortunately there are many options of funding business owners can consider, the equity funding, for instance, comes with little or no interests on loans but lenders may become equity shareholders of the business. Loans from families and friends can also go a long way in meeting business objectives.