Further Startup Finance for Manufacturing Businesses
Loans
Traditionally, a loan from the bank or similar lender has been the most common form of finance for new businesses; and although other forms of finance are growing in popularity, the loan is usually most entrepreneurs’ starting point.
A business loan is normally quite difficult to get, you will need to demonstrate that you have planned the business effectively, and that the business prospects are good. Some business loans require a personal guarantee, which ensures they will be paid even if the business fails. A small number of business loans allow you to start with lower repayments which rise gradually, giving you time to get the business running properly before full repayments start.
If you cannot obtain a business loan, then you may want to consider using a personal loan for finance. These are generally easier to obtain than business loans, but usually carry higher interest rates. You must also remember that a personal loan is secured on your home, which could put it at risk if the business fails badly.
Credit Cards
The fastest growing form of business finance is currently credit cards. The quickness of finance and the difficulty some businesses have in obtaining a loan is pushing entrepreneurs to use cards, despite their normally high interest rates.
“Credit cards can be useful for quick finance, but interest quickly adds up”
Although credit cards can be useful for quick finance, the interest on them can quickly add up if they are not cleared regularly, leading to higher repayments and other problems. In most cases you will be better off trying other forms of finance first.
Overdrafts
An overdraft is one of the most common forms of business finance, often being utilised alongside loans, asset finance or factoring/invoice discounting. An overdraft provides an instant and flexible way of providing finance without the need for security.
It is important to remember however, that an overdraft is not free money! (As often thought) Interest is charged on your overdraft when it is used, and banks reserve the right to request repayment in full at any point. You will also be liable to further payments if you go over the overdraft limit.
Although an overdraft is flexible, it must not be overused, many businesses have failed because they overuse their overdraft and end up being unable to finance payments. An overdraft is a good source of backup or emergency finance, and it is a useful thing for any business to have; but should not be used as a replacement for other types of finance.
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