Whenever anyone starts up a business, whatever the product or service, then there will be an element of finance needed. Before the days of finance houses and institutions supporting entrepreneurial endeavours, a newbie start-up would need to have all the cash up front from family money or savings. Any missing chunks would have to be arranged through the high street bank that the family used. Going for that initial ‘loan’ was always an extremely serious matter. Best suit and tie needed; clean shoes and the tidiest appearance possible. Together with the right look comes the proper preparation for such an application – a full business plan with full note of how much personal finance is being put up. Along with this is the five year plan suggesting how much growth is anticipated and how that growth is to be achieved. There will also need to be a ten year plan for prosperity. Another vital document would have been the proof that the applicant was not a debtor at any other bank and had no overdraft outstanding anywhere; no credit card debt. The bank would offer the finance only if it felt the applicant presented good prospects and would not fall into debt soon if at all. The business rate of interest would have been pretty high too. This was to put folk off borrowing too heavily against a business plan with only limited profit prospects.
These days there are so many more options, from a secured loan to unsecured. The essential differences being: the advantages of gaining a secured loan are the chance to take a higher loan altogether; there will generally be longer repayment terms with a much lower interest rate and arrangement fee. It can also be easier to obtain a secured loan if there has been any history of bad debt. The disadvantages however would be the risk of loss and thus the loan needing to be repaid sooner. The arrangement fees and interest and time it takes to do security and character checks to enable the applicant to borrow money. Examples of secured loans for business could include invoice financing which is a way for businesses to bridge the working capital gap that exists between the provision and supply of goods or services to the buyer and the buyer paying the agreed price for them. In the old days, there was no payment up front for services; no credit card or card reader machines. Everything was on monthly terms. When a business takes out an invoice finance option they assign – basically they sell some or all of the customer invoices that are currently outstanding to the finance provider. The client then has access to up to 80 or 90 percent of the invoice value. The balance of the 10 or 20 percent value of these assigned invoices, less all arrangement fees, will be made upon payment of the invoices by the end customer of the client business. Complicated, but popular.