With soaring inflation, global instability, and the threat of war looming over Europe, starting a new business is no easy task in the current climate. However, it isn’t completely impossible. You should be able to get the financing you need with a little preparation, diligent investigation, and the assistance of experienced professionals.

Although, in the event that traditional funding options are difficult to secure, other sources of financing may be a viable alternative. These can include alternative types of finance, such as peer-to-peer lending, crowdfunding, angel investing, and other types of funding that may be more accessible and not need as lengthy a credit history like you’d need for a bank loan.

However, there are particular complications that should be avoided in any kind of financing.

Preparation is essential.

The process of securing a business loan from a financial institution or lender is a lot like applying for a mortgage. They’ll want to know that you’ll be able to pay back the loan and that you have a strategy in place for how you’ll do so.

How can they expect them to invest in you if you aren’t willing to invest in yourself?

Although it is common in the lending industry for a borrower’s business plan and financial forecast to be required as collateral, lenders will also want to see a clear business strategy and evidence of consistent revenue to support the repayment of the loan.

“Failure to prepare is preparing to fail,” as the saying goes.

Choosing between equity and loans

Equity – Friends and relatives, angel investors online, and crowdfunding platforms may all provide equity contributions.

Due to the lack of a loan repayment obligation, equity has a lower risk profile than a loan. Investors, on the other hand, get a piece of your earnings in the form of stock in your firm. In the early stages of a company, this may help free up extra capital, but it can also lead to conflict, particularly if the investors are family members.

On the other hand:

Loans – Because they do not control your firm, banks or lenders are unable to influence the way you manage your business.

It is possible to get a loan that is short-term or long-term, depending on your needs. Although if you take out a loan, you’ll have to pay it back in a certain amount of time, as well as any interest you accrue, so this can mean you may have to pay back more than you borrowed.

Know how much you can afford to borrow.

It may seem self-explanatory but avoid taking on more debt than you can afford to repay (or too little). Talk to prospective lenders about what you need and what they believe you can afford.

Keep an eye on your credit rating.

When a lender decides to provide you a business loan, they will always take into account your credit score. Because of this, lenders may assume that company owners who haven’t managed their personal credit would do the same with their business credit. As a result, keeping track of your own credit score and devising a strategy to improve it if required is essential.

If you’d like to talk through what financing options would be right for you, get in touch with our expert team at enquiries@aitaccountants.co.uk