If your business isn't trading yet you can still take out finance, although the business must have been incorporated in the case of a limited company or registered as a sole trader. Because you have not started trading yet you will find the number of lenders available are less than if you were already trading. This is because many lenders want to see some history of trading and won’t lend to those who can’t show it. You will be required to provide other forms of reassurance to show you have means to repay what you borrow. These include:
Personal guarantee A personal guarantee makes the director liable for the business’s debt in the event the business becomes unable to repay it. This is generally always necessary with new business or start-up finance to mitigate risk.
Credit score Whether you are a limited company or a sole trader, your personal credit score matters because you are signing for the finance. Your lender will access your credit file through a company like Equifax or Experian to confirm your personal details, see how much debt you are in and see if you pay back well. A bad or poor credit score isn’t a No, but it could limit your opportunities.
Business plan Because you are a new business your lender will want to see a business plan so they can get to understand your business. This will include cashflow forecasts and profit and loss with an explanation for how the money you borrow will be used. This insight will be invaluable for the lender and help there decision.
Security Generally if you wish to borrow is over £25,000 or you have a bad or poor credit score, you will likely be required to provide security to secure your finance. Security can be vehicles, property, machinery and many more depending on the lender, so long as it is owned by you and covers the value of the finance
Types of finance available Two options available will be; secured finance or unsecured finance
Secured finance has a finance ceiling up to £750,000 and is used in cases of larger amounts and in cases of poor or bad credit history. A personal guarantee is often required but in return you get lower rates. Unsecured finance is generally lower but it doesn’t require any security. You may still be required to provide a personal guarantee though, which means it isn’t completely risk-free.
If you would like to find out more about these call us on 0208 987 8004