Financing Options For Your Startup
Setting up a trade business is a great opportunity to earn more and also have your own freedom. But getting started can be challenging, especially in securing capital to purchase what you need and to set-up a viable operation. It is a common problem for any new start-up and unfortunately many businesses fail in the early years due to lack of funding.
Here are five ways to help fund your business and get some extra capital.
A Business Bank Loan
Bank loans are often the first option when starting up a trade business. This may include a:
- Flexible loan – you can choose from fixed or variable interest rates
- Interest-only loan for a short period of time
- Secured or non-secured loan. Depending on your credit history, you may be able to secure a small unsecured loan to get yourself started.
It is best to consult with a business expert or business coach to help assess what you need to get your business started before you head off to the bank for a loan.
An Overdraft Account
An overdraft facility allows you to continue withdrawing money even if you do not have sufficient funds. This is the same as a loan as the bank is allowing you to borrow a specific amount of money. The overdraft is usually linked to your business bank account. The bank may approve an overdraft limit ranging from a few hundred dollars to thousands. Generally it is unsecured.
You may consider an overdraft account to manage your cash flow and to avoid cheques bouncing.
Just like any loan, you will have to pay interest on the outstanding balance. Interest on an overdraft account is often lower than a credit card interest rate. An accountant or financial broker can best walk you through the scenario should your business seek an overdraft.
Credit Card Facility For Your Trade Business
Credit cards can be a great source of business capital.
To start off, make sure you have a good credit score. Then start asking your credit card company to increase your limit. You can also apply for a new credit if you have enough merits. Lastly, you can also apply for a business credit card. Having a business credit card is good because this can establish a credit rating and line for your business.
Some credit cards offer a 50+ day interest free period, which makes it handy for purchasing business items on, especially if you are able to repay the balance at the end of the interest free period, monthly.
Bear in mind the interest rates on a credit card can be quite high.
Using Your Home Equity
As a property owner, you may be eligible for a loan based on the value of your property. If you have built up significant equity in your home, there may be an option to extract from funding for your business through this. One of the benefits of doing it this way, is that, interest rates on a home loan are generally lower than business loan rates.
Generally, banks can offer up to 70-80% of the value of your home as a loan.
Ask your mortgage broker for more details on this. They can also guide you through the process of securing this type of loan capital.
One way to startup your business is to share it with another person. There are obviously positives and negatives of having a business partner, but if it’s the only way you can fund your business, it may be worth considering, especially if they can contribute cash and capital.
With such an arrangement it’s always important to speak to your business lawyer about how to best structure this and even discuss upfront what will happen if the partnership does not work out.
Need Help Finding Accountants, Legal and Professionals For Your Trade Business?
If you do need a good mortgage broker, income protection specialist, accountant, lawyer or bookkeeper to help you with your tradie business, try contacting one from our Tradebusters Academy Network.
These professionals specialise in helping tradesmen in business and we are sure one would be a good choice for you.