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It’s sensible to be cautious about getting a business loan or opening additional accounts. But, there’s no harm in exploring financial solutions tailored for small businesses, as they exist for a reason, and many business owners couldn’t do without them.
If you’re open to the idea of getting a business finance product, don’t let the following myths put you off. The business finance options you consider could help take your firm to the next level.
Starting a business is expensive, and it may be challenging to get off the ground without some form of finance. Banks and building societies offer loans to start-ups, but the list of potential lenders extends to other providers, including crowdfunding platforms, peer-to-peer lenders and angel investors. And don’t forget about the government-backed Start Up Loan, which offers new firms between £500 and £25,000 repayable within 1 to 5 years at 6% APR.
While a loan can help a firm in difficulty, many companies turn to business finance to facilitate growth rather than to get out of trouble. Business development and running costs can be high, and a lack of cash flow can hinder progress. This is where finance arrangements, including loans and credit cards, can help.
When you’re starting as a sole trader or setting up a firm, it can make sense to use your personal current account and credit card. But as your business grows, it may become increasingly hard to keep your personal and business transactions separate, causing problems when filing tax returns.
The pros and cons of opening a business bank account are irrelevant if you run a limited company. In this case, you are legally obliged to have a business account in order to separate the individual, typically the owner and partners, from the corporate entity. If you don’t, HMRC could fine you £3,000 or require you to quit as a company director.
While some business owners may baulk at the idea of putting their home or car up as security on a business loan, this is possible. In fact, if you are a start-up, it could be your best option, given your business credit report may be non-existent or scant. Even if you have been in business for some time, your business may not own much, whereas putting up your personal stock could influence lenders.
Applying for business finance isn’t hard work. After all, financial providers thrive on working with small businesses. If a financial company can get you on board as a client, and you prosper, they can offer everything from business credit cards and loans to specialist insurance and mortgages.
As such, the banks and building societies make applying for business finance easy. Applications for a business bank account, loan or business credit card take minutes, even if you may have to wait a while for a decision.
Like many myths, there may be a grain of truth in some of the ones featured here. Yes, struggling firms tend to need credit, but banks and other financial providers would find it hard to keep afloat if they lent to sinking ships alone.
Financial providers make money from interest charges on loans and credit, and benefit from ongoing relationships with thriving businesses. This puts start-ups, small and expanding businesses in a strong position, and explains why good business finance options are abundant.
Alex joined in 2019, bringing his expertise to a range of roles working in both the analytics and commercial teams. Then he stepped across to focus on the product team, where he’s been focusing on scaling up the teams’ SME offering.
